Method and apparatus for financial product risk determination

ABSTRACT

A system for determining risks and/or valuations associated with financial products, comprises a data processing system having computer(s), database(s), financial product data record creating for creating one or more financial product data records, financial product data records identifying a particular financial product by a transaction credit or serial number, and financial product risk data software for creating one or more risk data records associated with the financial product data records.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of pending U.S. patent applicationSer. No. 12/870,354, filed Aug. 27, 2010, which is acontinuation-in-part of pending U.S. patent application Ser. No.12/536,197 filed Aug. 5, 2009, which is a continuation of abandoned U.S.patent application Ser. No. 12/419,163, filed Apr. 6, 2009 nowabandoned, which claims the benefit under 35 U.S.C. §119(e) of U.S.Provisional Patent Application No. 61/072,966, filed on Apr. 4, 2008.The disclosures of all prior applications are incorporated herein byreference in their entirety.

This application is related in subject matter to:

Abandoned U.S. patent application Ser. No. 09/178,400, filed Oct. 24,1998, which is incorporated herein by reference;

U.S. patent application Ser. No. 09/296,573, filed Apr. 22, 1999, nowU.S. Pat. No. 6,594,635, issued Jul. 15, 2003, which is incorporatedherein by reference;

U.S. patent application Ser. No. 09/370,619, filed Aug. 7, 1999, nowU.S. Pat. No. 7,742,966, issued Jun. 22, 2010, which is incorporatedherein by reference;

Pending U.S. patent application Ser. No. 10/427,519, filed May 1, 2003,which is incorporated herein by reference; and

U.S. patent application Ser. No. 12/765,688, filed Apr. 22, 2010, nowU.S. Pat. No. 8,027,909, issued Sep. 27, 2011, which is alsoincorporated herein by reference.

FIELD OF THE INVENTION

The invention relates to financial markets and, more particularly, to asystem and method for disclosing risks related to financial instrumentssuch as contracts, tracking the financial instruments and theirindividual risk elements, and valuing the financial instruments.

BACKGROUND OF THE INVENTION

The financial marketplace consists of numerous products that haveevolved out of the most basic designations of equity and debt. Productspecialization has resulted in linguistic and semantic differences,similar to those that can be found in different national languages inthe world's countries. The transactional conventions and methodologiesfor scoring and rating the products that are associated with thesedifferences can result in real price and term discontinuities, just asthey appear in society as different approaches with different meanings.As is well known to those in the trade, it is possible through one kindof financial engineering or another to change high risk assets into lowrisk ones through various kinds of aggregation, diversification, hedgingand division of risk. As a result, a single C risk can be re-configuredinto a product that appears to have AAA-risk characteristics. Of course,the individual asset retains the same characteristic that it always had;it is the pooled, re-configured and financially re-engineeredaggregation of products that is measured differently. The difference ismost easily seen as the analysis becomes increasingly granular. Thedisease in the form of a potentially toxic alignment of risk elementsthat might occur in either a singular or complex alignment of risks thatmight infect one class or sub-class of assets may not necessarily spreadto the whole—and, then again, it might, thereby creating a systemicrisk. The financial world has now seen how this result can play out todisrupt the entire marketplace in the subprime mortgage crisis of2007-2008. This is a clear example of a financial “perfect storm”.

Therefore, it would be beneficial to have a superior method and anapparatus for continuous reevaluation of contracts that evidencefinancial risks.

SUMMARY OF THE INVENTION

The needs set forth herein as well as further and other needs andadvantages are addressed by the present embodiments, which illustratesolutions and advantages described below.

The system of the present embodiment includes, but is not limited to, adatabase, instrument creating software executing on a computer readablemedium for creating a financial instrument and storing it in thedatabase, risk creating software executing on a computer readable mediumfor creating a risk and storing it in the database, risk associatingsoftware executing on a computer readable medium for associating a riskwith a financial instrument, and risk updating software executing on acomputer readable medium for updating a risk. Evaluation softwareexecuting on a computer readable medium can evaluate the value of afinancial instrument based at least in part on any associated risks.

The method of the present embodiment includes, but is not limited to,the following steps: creating a financial instrument; creating a risk;associating a risk with a financial instrument; updating information ona particular risk; and evaluating the value of a financial instrumentbased at least in part on any of the associated risks or risk elements.

Other embodiments of the system and method are described in detail belowand are also part of the present teachings.

For a better understanding of the present embodiments, together withother and further aspects thereof, reference is made to the accompanyingdrawings and detailed description, and its scope will be pointed out inthe appended claims.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a schematic diagram of a data processing system in accordancewith the invention;

FIG. 2 is a block diagram of the data processing system in accordancewith the invention;

FIG. 3 is a schematic block diagram depicting one embodiment of thesystem according to the present teachings;

FIG. 4 is a schematic block diagram depicting one embodiment of dataassociation according to the present teachings; and

FIG. 5 is a flowchart depicting one embodiment of the method accordingto the present teachings.

DETAILED DESCRIPTION OF THE INVENTION

The present teachings are described more fully hereinafter withreference to the accompanying drawings, in which the present embodimentsare shown. The following description is presented for illustrativepurposes only and the present teachings should not be limited to theseembodiments. Any computer configuration and architecture satisfying thespeed and interface requirements herein described may be suitable forimplementing the system and method of the present embodiment.

If one were creating banking, insurance and capital markets businessmodels anew, one would not be using models that are conceptuallygrounded in the 18th to 20th centuries. One would instead focus on 21stcentury technology and this nation's proven strengths in marketcreation. This country has long been esteemed for free markets,resilience, and innovation. The current breakdown in finance providesthe opportunity to update structures and practices and to utilizecurrent technology in devising a solution that supports growing dynamicfinancial and commercial markets.

The current business model for regulation of insurers requiresregulators to rely on financial statements made by insurers that providea snapshot of the insurer's financial position as of an historical date.Worse, invested assets (while they may reference marks to market) arejudged as if they will be held to a maturity and redeemable at par. Infact, in economic crisis, large numbers of claims, particularly combinewith policy loans and various insured rates of return could forceinsurers to sell assets at a significant discount to par value. If theinsurer's management does not completely understand the risks they haveassumed or the value of the assets they have secured, the financialstatements they make will be deficient. Regulators can only discover theinformation was flawed at a later date or during a financial audit. Theinvention is a better way to gather information about the insurer's (orlender's) financial position and its market practices deploying amethodology that demonstrably supports the necessary market clarity. Inaddition, this same technology will benefit policyholders by making keyinformation, available through competitively targeted and appropriatepolicy terms and conditions that actually do cover the risks that theperson wishes to transfer to the insurer, necessary to arrive at acompetitive and or appropriate secondary market price or valuation.

Knowledge is the essential tool for all regulation. Regulators cannotregulate that which they do not know. Therefore, regulators must haveaccess to as much information as regulators deem necessary to do theirjob—not access only to that information that the regulated entitieschoose to make available.

Under US accounting standards, different industries use differentmethods of accounting. It is clear that, no matter what the accountingmethodology used to value assets is, if it is allowed to continueunchanged, it will continue to be insufficient to properly alertregulators about the deterioration in the value of insurance or mortgagemarket assets—the most advanced of all the loan markets. There is muchto be learned from this experience. The system disclosed herein acceptsany accounting regime or valuation methodology.

One aspect is that our present rules require us to reference oldinformation. Old information can only be a lagging indicator, which isuseless in volatile markets—because excessive moves in markets drivevalues way up or down. One of the nation's leading authorities flaggedthe results of the current methods in surveys. A relatively recent GrantThornton study of controllers and CFOs showed that “less than 15%(14.18%) say they plan on making use of the fair value option.” Asimilar survey of this same group shows that 62.44% believe it would bepossible to “intentionally misstate their financial statement to theirauditor”. The reality of these two samplings, combined with the currentfinancial crisis, forces those who think in terms of value, keep thenation's books, and regulate our financial markets to reconsider thewisdom of using past-referenced valuations in the face of rapidlychanging current and future values.

The invention inherently changes this disconnect in value perception byupdating all of the definitions of financial products in real time,inherently supporting proper market clarification, transparency, fulldisclosure of price and terms—with continuous re-pricings.

In accordance with the invention, financial market products where thereare a first sector for origination of the financial products (such assale of insurance, or making of loans to borrowers) and a second sectorfor resale (or chains of resales) of a fractional interest or entireinterest of the insurer or lender in the financial product, data iscaptured in the course of each transaction involving the creation orsubsequent intermediation or transfer of financial products. The data isrecorded in a data storage system so that each financial product andeach risk element and related subsequent transaction involving thatfinancial product are described, time stamped, identified with indicia,with the conversion/pull-through rate noted at each work or process flowpoint in a data report that discloses the original terms of thefinancial product and its value, and changed terms of the of thefinancial product and its value arising from external events or from thesubsequent transactions. The data report is provided in a predefinedstandard format and can be continuously updated with new, relevantinformation.

The data report is offered for sale to parties that conduct transactionsin the two sectors, and can be made available to government regulators.The pricing of data is offered under a pricing schedule providingreductions in the price of the information which is related to theamount of information delivered to the system by the user, and/or tofees paid for services such as intermediation services provided to theuser.

During application processes for financial products, includingspecifically, consumer-directed financial products, including but notlimited to life insurance, annuities, medical insurance, homeowner'sinsurance, renter's insurance, automobile insurance, secured loans,mortgages, home equity loans, automobile loans, personal loans or linesof credit and unsecured loans, and credit card revolving loans, as wellas business directed financial products of the same type includingmortgages for investment properties and loans and lines of creditprovided for use as operating capital, offered by a plurality ofofferors, information is obtained in the application processes.

The present invention is a data processing system having one or moreprogram executing computers, and one or more data storage devices, whichprocesses data captured in the application processes and in subsequenttransactions. In particular, the invention incorporates one or morecomputer program products executing on the data processing system 101,which incorporate the following steps:

receiving or extracting or generating data elements regarding financialproducts contracts,

creating a data report in a standard data format containing thefinancial products contracts data elements,

storing the data report in the one or more data storage devices,

receiving new data items regarding one or more of the financial productscontracts,

adding to or modifying the data report to create an updated data reportincorporating the new data items, and

storing the updated data report in the one or more data storage devices.

The financial products contracts will typically comprise insurancecontracts, reinsurance contracts, loans, or lines of credit, orsubsequent aggregations and derivative transactions relating thereto,including reinsurance, and derivative securities such as collateralizeddebt obligations and credit default swaps.

The data elements regarding financial products contracts can include oneor more of insurance underwriting standards, insurance financial terms,insurance applicant data, loan application standards, loan financialterms, loan applicant data, or comparable transaction details.

Thus, for example, in the case of a mortgage, the data elements caninclude one or more of loan underwriting standards of the loanoriginator; loan terms such as the size or amount of mortgage, the typeof loan (primary mortgage or home equity), the loan to value (LTV)and/or combined loan to value (CLTV) ratios, the mortgage rate (Fixed orAdjustable rate (including reset date)), appraisal value, appraisername, the primary/secondary residence; the Origination Date, the holderof original note/location of assignment documents, prepayment history;and title search; and loan applicant data such as age, income,employment history/type, credit history, debt to income (DTI), anddocumentation provided, as well as how these elements may be changingover time to impact value/price.

The data report created from these data elements is in a standard formatso that the data contained in the report is consistently searchable,combinable, and updatable. Thus, the data in the data report can be usedto instantiate an OLAP cube for analysis of the data contained in thereports. The data elements can be stored in a relational database orother database. Alternatively, in a preferred embodiment, the dataelements do not require a relational database and are stored withassociated data tags to identify each data element. In the mostpreferred embodiment, the data tags are XML tags. In one version of thepreferred embodiment, the standard data format is an XBRL (eXtensibleBusiness Reporting Language) data format.

New data items regarding one or more of the financial products contractsmight include one or more of payment history, appraised value, loan tovalue ratio, comparable transaction details, comparable propertydefaults or value changes or risks, related financial instrumentchanges, or derivative contract data, inclusive of each price andassociated hedge at each intermediation. The new data items regardingone or more of the financial products contracts can relate to one ormore of the following types of risks: asset valuation, bankruptcy,credit, currency, changes in sentiment, counterparty, country,definitional (absence of standardization), diversification, economic(Inflation, recession and interest rates—yield curve), environmental,liquidity, litigation, market crash, moral hazard, performance oroperating risk, spread, terrorism or war, transaction, transfer,transparency, volatility, or volumes.

In one embodiment, the financial products contracts comprise creditderivative swap contracts; and the new data items may disclose changesin related financial products, or defaults in related financialproducts.

The one or more computer programs perform calculations with respect tothe new data items to determine risk conditions; and add to or modifythe data report to create a risk updated data report incorporatingdetermined risk conditions, which are preferably identified in theapparatus with risk condition data tags. Preferably, the risk conditionsare determined relative to predetermined standards. Among theseconditions could be one in which the counterpart attests to the accuracyof the disclosure for each risk element giving either the source ormeasure and the reason for reliance or change from a previous measure.

The apparatus further includes one or more computer programs executingon the data processing system 101 for determining if a person hasprovided data elements regarding financial products contracts to thedata processing system and calculating a system credit related to aquantity of data elements provided by the person. If so, the systemcredit may be applied by the person to a cost of obtaining data reportsfrom the data processing system or to other economic benefits fromreduced subsequent transaction costs.

Preferably, the system credit is operably connected to a data element,data report, new data item, or updated data report. The operableconnection may be obtained through a XLink defined hyperlink. Thehyperlink will typically be an out-of-band hyperlink known as anextended link. The linkage allows identification of a data contributorand a determination of the possibility of adjustment of schedules of theaward of the system credit amounts based on experience gained in theeffect of the system credit in enhancing or occluding greater systemtransparency.

Usages of said system credits are determined and used as an analytictool to determine an optimum or at least comparable pricing methodologyfor other financial products contracts. The frequency, amount, anddistribution of system credits can be used as an analytic tool todetermine a degree of market transparency. A transparency index can becalculated. Derivative financial instruments are to be created andexchanged based on said transparency index. Derivative financialinstruments may also be created based on system credits. Such derivativefinancial instrument can include a credit wallet for the aggregation andexchange of system credits, in which such exchanges might be fungiblebetween different markets and/or sectors.

The data reports are continuously updated to reflect changes arisingfrom external events or from the subsequent transactions. The datareports can be made available to parties in either a primary orsecondary market for the financial products. In one preferredembodiment, one or more computer programs executing on the dataprocessing system determine if a person has provided data elementsregarding financial products contracts to the data processing system andcalculate a system credit related to a quantity of data elementsprovided by the person. The system credit may be applied by the personto a cost of obtaining data reports from the data processing system.

The data processing systems 101 may incorporate one or more mechanismsthat prime an efficient market and that reinforce the efficiency of themarket. Three illustrative mechanisms are:

First, where the data processing system 101 constitutes anoffering/closing system or exchange for the sale of financial products,the pro rata fees incurred with respect to transactions associated witha patron for patronizing the system might decrease as the total feesincurred by transactions associated with that patron increase. Forexample, although the owner/operator of data processing system 101 mightreceive a fee from a lender/insurer when the lender/insurer closes aloan or writes an insurance policy through the system, a portion of thefee might be remitted back to the lender/insurer for having closed alarge volume of business through the system in a given interval. Such asystem also rewards the individual counterpart for a disclosure, orupdated disclosure, with either such and economic or strategic benefit.Advantageously, the fees from all types of loans, lines of credit and/orinsurance policies are aggregated for determining the amount of theremittance.

Therefore, this mechanism encourages lenders/insurers to patronize thesystem with larger, rather than smaller, volumes, which is accomplishedby endeavoring to offer the most varieties of loans, lines of credit, orinsurance at the lowest interest rates or insurance premiums and at thebest possible terms. This might also be true for individual loan orinsurance seekers.

Second, some or all of the parties who patronize the system mightreceive statistics compiled by the system on the condition of the marketin loans, lines of credit, and/or insurance products. Although thesestatistics cost the owner/operator of data processing system 101 littleto compile, their value is so great that lenders, insurers, reinsurers,reinsureds and buyers (i.e. borrowers} and/or sellers (i.e. providers)of loans who do not have access to the statistics will have difficulty,in the long run, in competing with those who do. An analogy makes thesituation clear; a trader of stocks without access to the stock tickerand current bid and offer quotations can be arbitraged by a trader whodoes.

Furthermore, although some or all of the statistics might be sold forcash, the statistics are advantageously given for free, or sold at asubsidized price, to those patrons of the system who actually disclosenecessary data in the system. Advantageously, the price for thestatistics decreases as the measure of fees incurred by transactionsassociated with a patron increases. For the purposes of thisspecification, the provision of statistics for free, or at a subsidizedprice, to those patrons of the system who close loans, buy and/or sellloans, write insurance policies, and/or reinsure risks or both throughthe system is called “netbacking.”

Netbacking also encourages lenders/insurers to patronize the system withlarger, rather than smaller, volumes, which is accomplished byendeavoring to offer the most varieties of loans, lines of credit, orinsurance at the lowest interest rates or insurance premiums and at thebest possible terms.

Third, a portion of the fees incurred with respect to transactionsassociated with a lender for lending through data processing system 101,or with an insurer for writing policies to insurance applicants, mightbe credited against the fees incurred with respect to transactionsassociated with the lender for buying and/or selling loans through thesystem, or with respect to reinsurance transactions (as either buyer,seller, reinsurer and/or reinsured). For example, many lenders desire tosell a loan immediately after they have made it, and many insurers whowrite policies immediately seek reinsurance (i.e., to transfer all, or aportion of, the risk associated with the policy to a reinsurer). It is,therefore, possible that a lender/insurer will lend to an applicant orwrite a policy through the system, and incur a fee for doing so, andthen sell that loan or reinsure that policy through the system and incura second fee. Data processing system 101 credits, according to somecredit schedule, a portion of the fees associated with a patron forlending or writing insurance through the system against the feesincurred for buying or selling a loan or for reinsuring through thesystem.

An alternative embodiment, in the loan context, works in reverse andcredits, according to some schedule, a portion of the fees incurred withrespect to transactions associated with a patron who buys and/or sellsloans through the system against the fees incurred for lending throughthe system. In the insurance context, this alternative embodiment worksin reverse and credits, according to some schedule, a portion of thefees earned with respect to a patron in reinsuring through the systemagainst the fees incurred by the patron in a transaction for writinginsurance through the system. In yet another embodiment, in the loancontext, the fees incurred in buying and/or selling loans through thesystem are credited against the fees for lending through the system, andthe fees incurred for lending through the system are credited againstthe fees for buying and/or selling loans through the system. In yetanother embodiment, in the insurance context, the fees incurred inreinsuring through the system are credited against the fees for writinginsurance through the system, and the fees incurred writing insurancethrough the system are credited against the fees for reinsuring throughthe system.

These structures encourage lenders/insurers to patronize the system withlarger, rather than smaller, volumes, and to offer the most varieties ofloans, lines of credit, or insurance at the lowest interest rates orinsurance premiums and at the best possible terms, and by patronizingthe secondary market in loans or reinsurance with the best possible bidsand offers.

The end result is that in order to compete in the consumer finance,commercial finance and/or insurance markets, lenders, buyers and/orsellers of loans, insurers, reinsurers and/or reinsureds must haveaccess to the statistics, which encourages them to patronize the systemwith competitive offerings to get access to the statistics, whichincreases the competitiveness of the market, increases its volume, andpromotes its efficiency. Therefore, some embodiments prime the marketfor efficiency and incorporate a positive feedback mechanism thatmaintains that efficiency. It is understood, however, that the primingof embodiments might be assisted by advertising and other marketingtechniques.

The data processing system 101 may provide a market for: (1) theprovision of loans, lines of credit and/or insurance from a plurality oflenders/insurers to a plurality of applicants, and (2) the buying andselling of loans between buyers and sellers of loans, or reinsurance ofexisting policies by a plurality of reinsurers to a plurality ofreinsureds (not shown); and in any event, receives and stores dataelements and updated data elements and new data items about suchtransactions. One or more loan application processors or insuranceagents and one or more loan processors or underwriters mightadvantageously be engaged to facilitate the provision of loans, lines ofcredit, or insurance between lenders/insurers and applicants.

An “application processor” is an intermediary that prepares a loan orinsurance application (e.g., by filling out the paperwork, by enteringthe applicant's pertinent information into data processing system 101via a computer terminal, etc.). Although a sophisticated applicant canact as his or her own application processor, it might be desirable for aless sophisticated applicant to have another entity act as anapplication processor.

An “application” (also known for insurance as a submission) may,depending on context, include an inquiry regarding a loan or line ofcredit and/or insurance, without a full application being prepared andconsidered for funding.

A “loan processor” is an entity that evaluates the compliance of a loanand/or insurance application against lending and/or insuranceunderwriting standards. Although lenders/insurers often act as their ownloan processors, a lender/insurer might employ another entity to act asa loan processor.

Furthermore, because many entities in the loan, credit and insuranceindustries are large and sophisticated, it is common for a single entityto perform different roles at different times or with respect todifferent transactions. Therefore, a single entity can be:

(i) a lender, or

(ii) a buyer (or borrower) or seller (or lender) of loans, or

(iii) an application processor (or broker/agent), or intermediator

(iv) a loan processor (or broker/agent), or intermediator

(v) an insurer, or

(vi) or reinsurer, or

(vii) a reinsured, or

(viii) an underwriter, or

(ix) an applicant; or

(x) an insurance agent, or

(xi) any combination of i-x.

Data processing system 101 receives data from each lender, applicant,application processor (broker/agent or intermediator), loan processor(broker/agent or intermediator), buyer and/or seller of loans,broker/agent or intermediator, insurer, reinsurer, reinsured, insuranceagent and/or underwriter/aggregator or distribution agent, and in someembodiments, endeavors to match lenders/insurers with appropriateapplicants and reinsurers with appropriate reinsureds, to facilitate theprovision of loans and lines of credit. Each lender, applicant,application processor broker/agent or intermediator, loan processorbroker/agent or intermediator, buyer and/or seller of loans broker/agentor intermediator, insurer broker/agent or intermediator, reinsurerbroker/agent or intermediator, reinsured, insurance agent and/orunderwriter is advantageously capable of providing data to and receivingdata from data processing system 101 via a data network (e.g., theInternet, etc.) or via a telephone network (e.g., the Public SwitchedTelephone Network, etc.) or both.

FIG. 2 depicts an illustrative embodiment of data processing system 101,which illustrates the updating of data reports with new data items andthe earning of a system credit from submission of new data items.

The invention includes the following advantages:

data processing system 101 can provide buyers and sellers of loans withstatistics regarding the market in pools of loans, which can be used bythe buyers and/or sellers of loans to: (1) assess the price/value of anindividual loan, (2) assess the value of a loan or pool of loans, (3)determine which types of loans they desire to buy and sell, and (4);arbitrage those buyers and/or sellers, reinsurers, and/or reinsureds whodo not have access to the statistics.

data processing system 101 may provide reinsurers, and/or reinsuredswith statistics regarding the market in insurance and reinsurance thatare of value in: (1) assessing the cost/value/price of individualpolicies that are to be reinsured; (2) determining which policies theydesire to reinsure and at what price, and (3) arbitraging thosereinsurers and/or reinsureds who do not have access to the statistics.

data processing system 101 may provide buyers and/or sellers with anefficient market for the purchase and sale of the servicing of pools ofloans (e.g., providing payment collection and other administrativeoverhead, etc.).

data processing system broadly provides an efficiently priced market byallowing for transaction fees to wholly or partially offset one anotheror have either offset access to strategically critical marketinformation—even prospectively across asset classes and product lines.

These inducements are possible because the costs of doing business forlenders, insurers, reinsurers, reinsureds and buyers and/or sellers ofloans and the interest rates or insurance premiums and fees toapplicants are unnecessarily high because efficient markets for loans,lines of credit, insurance and reinsurance do not exist. Furthermore, ifa highly efficient market for loans, lines of credit, insurance andreinsurance did exist, the cost of doing business for lenders, insurers,reinsurers, reinsureds and buyers and/or sellers of loans coulddecrease, the interest rates or insurance premiums and fees toapplicants could decrease, and the provider of the market could alsomake a profit. Furthermore, the existence of an efficient market couldeven provide lenders/insurers with a larger profit than they make now ifoperating costs drop more quickly than interest rates or insurancepremiums drop. In other words, the intermediation of an efficient marketbetween applicants, lenders, insurers, reinsurers, reinsureds and buyersand/or sellers of loans can actually make the cost of loans, lines ofcredit, or insurance to applicants go down, the cost of doing businessto lenders, insurers, reinsurers, reinsureds and buyers and/or sellersof loans go down and the profits to lenders, insurers, reinsurers,reinsureds and buyers and/or sellers of loans go up. Therefore, dataprocessing system 101 endeavors to provide a market for the provision ofloans, lines of credit, insurance and reinsurance that is highlyefficient.

The efficiency of the market for loans, lines of credit and/or insurance(the primary or retail market) may be affected by the efficiency of themarket in pools of loans and/or reinsurance (the secondary or wholesalemarket) and vice versa. Therefore, data processing system 101 mayimprove the efficiency of both the primary market and the secondarymarket so that, to the extent the efficiency in one enhances theefficiency in the other, a synergy of efficiency between the two marketsis affected. For example, to effect this synergy, fees incurred by apatron to the owner/operator of data processing system 101 for lendingthrough the primary market might be credited against the fees incurredby the patron to the owner/operator of data processing system 101 forbuying and/or selling through the secondary market (and vice versa).

Risk Transfer

The present invention extends the above described apparatus and methodsand extends them to encompass systems for risk discovery and analysis,with associated pricing adjustments, and an exchange or index productfor use on an exchange that trades risk transfer and/or financialproducts that transfer risk, whether in primary or secondary markets.Credits are earned from use of the system, index or exchange. There canbe an index of credits. An index may be used to either offset or reflectthe measure of transparency. All transactions may be tracked. Allcredits are tracked—and can be made fungible to cross financial sectoror product lines.

Historically, auction markets have provided the most efficient, andpreferred means of price discovery for an insurance or financialproduct. In insurance, reinsurance and capital markets, there arebrokers and agents that act as intermediaries between buyers andsellers. Brokers charge “transaction fees” for the transactions thatthey intermediate. Intermediaries can purchase insurance or financialproducts in an auction market for sale or brokerage to principals. It isalso possible for a principal to acquire the product directly withoutusing an intermediary.

When an intermediary functions in an auction market, their fees aregenerally smaller because the intermediary is functioning as agent andthe commission is stated. However, when an intermediary functions in anegotiated deal—not an auction market, the costs often grow as theintermediary seeks to expand his gross margin. Intermediation costs runbetween 7-20% (700-2000 basis points) or greater in the property andcasualty markets, and a maximum of 5% (500 basis points) for “riskless”NASD-mandated capital market transactions.

The cost of intermediation (but not a completed transaction) in themethodology of the present invention is an “all-in” 0.5% (50 basispoints). The new inventive methodology or solution enhances pricediscovery by providing data and analytics on the transactions,contracts, and market activity. This data is provided in real time andon an interactive basis to support accurate risk pricing. Lowerexecution costs and improved price discovery in the market in time leadsto cost savings for all market participants, including the consumer.

For a market to function optimally there must be confidence in themeaning and value of its contractual obligations. Confidence in thecontracts increases liquidity in the markets for insurance and otherfinancial products, including all kinds of loans, especially mortgages.Establishment and disclosure of standards, statistics, and definitionsapplicable to the contracts is fundamental to creating that confidence.This is achieved through disclosure of the terms and conditions of thecontracts as well as the clear establishment of necessary underwritingcriteria. The use of the invention enables the establishment ofstandards, definitions, and statistics necessary to optimal functioningof the market, and to creating reliable contracts. The inventivesolution does not impose the terms and conditions of the contracts, butrather encourages them to be established naturally in the freemarket—exposed and fully transparent.

The invention proposes a free market solution to dysfunctional, illiquidmarkets. The inventive solution focuses on the exchange of underwritingstandards in insurance, loans and lines of credit, as well as thecreation of data and analytics relating to the individual data elementstatistics and markets for those products.

An important part of the inventive solution is sorting and matching tothe best deal. Through this process, prospective counterparts to atransaction offer increasingly detailed information about themselves inorder to better target and price the transaction. This process alsohelps to control and lower costs by assuring a truly competitiveenvironment for all forms of risk transfer.

The inventive methodology fosters market transparency and induces usagethrough the grant of an economic or strategic benefit to all marketparticipants. The key element in the process that achieves these pointsis an economic or strategic benefit, specifically, a system creditarising from system usage which is identified by the trademark name“Transaction Credit.” The Transaction Credit system credit attaches toeach transaction fee. The Transaction Credit system credit offsetseither the cost of future transaction fees, or the cost of access tomarket-critical information. The Transaction Credit system creditencourages more transactions by lowering costs, generating more marketdata, and demonstrably improving market liquidity, thereby calmingmarkets. It provides an economic inducement for greater participation aswell as a self-priming mechanism for the market—a stimulus that is notinflationary.

Each and every constituent part of the financial market foodchain—whether a consumer, intermediary, transaction platform, workflowor process enabler, or an investor—is invited, but never compelled, toparticipate in every stage of the transaction.

All markets “clear” risk (meaning that they price risks and transformthem into acceptable and manageable structures) at what is called theclearing house price. The clearing house price is a function of manythings, most importantly, comparable transactions. As a result, the morethe risk can be defined and standardized, the more easily the marketclears, defines and standardizes it.

It is estimated that there are as much as $200 trillion in annualcatastrophic environmental risks in the U.S. Distributing thesecatastrophic environmental risks efficiently allows for future stabilityin the marketplace as the fee income from these risk transfers canoffset current losses. Even at the fully-loaded estimated 0.5% cost ofthe inventive methodology can save the nation trillions of dollars.

Moreover, the methodology can be expanded to other large-scale risks(allocation of natural resources, food, medicine, population, eventhreats to civil peace), or the focus can be narrowed to furthergranularly define on a going forward basis all existing financialinstruments.

The solution of applying the invention to risk transfer is applicable toany financial instrument and market participant for which there is aprimary and secondary market, and intermediation. This includes loans,lines of credit, insurance and reinsurance, derivative and otherfinancial products. In a model, additional revenues flow fromincremental transaction fees or the purchase of information.

The solution involves a universal Transaction Credit system credit thatconveys an economic benefit, displayed electronically, that fosters thedevelopment of an “Infomediary” that carries the necessary data andanalytics to clarify the marketplace. This credit will be used tosupport an effective utility, thus offering a more efficient andvolume-enhancing electronic distribution network for a full range offinancial products, including financial products that impact all formsof risk transfer. The result gives clear, economic and strategicadvantage to the system user and induces usage generating businessvolumes.

Sitting at an electronic meeting place of product creation, transactionand pricing is a measure of fees, associated credits and remaining termsof use that buy economic and strategic advantage for users through lowercosts or provision of critical market information.

Such information is, without limit, a description of: individual risk(s)covered; specific financial exposure per product; amount of governmentor private sector coverage of potential loss; diversification orincidence or percentage risk per investment pool (which can include asingle risk category or multiple risk categories such as environmental,weather, interest rate, counterparty and other analyzable risks);original and subsequent market pricing; and market volumes—an effective“ticker” of all appropriate financial market information available inreal time.

Over time, an analysis of the operational metrics involved in allaspects of product creation can be re-deployed to enhance operationalefficiency, facilitate document exchange, vetting and certification,reveal market excesses, create new products, modify the terms andconditions of existing products or predict, mitigate and, in some cases,even avoid risk.

This technology can be superimposed on an existing, de factomarketplace, singly or in a serial fashion to create a virtual communityof interests, a truly collaborative effort that accesses all necessarycapital pools. It can be easily organized using today's technology andfinancial skills at low cost relative to any other solution, open toall, enhancing and linking—but not disturbing—all sectors andtransaction platforms in the marketplace. It is an approach that isentirely optional and voluntary, in which all participants tradetransparency-related information for lower costs.

Key to the process is the electronic real-time display of the cleareconomic benefit available from the Transaction Credit system creditsfor each and every market participant, their financial impact, theirconvertability and fungibility into other goods and services and theirremaining term of use.

One should look for low-cost ways of improving transparency in allcredit, insurance and risk-related markets. There is a need to try togrow the market out of its current inefficiency.

Attributes of the system include:

(1) It is neutral—it does not favor any one special interest group orconstituency.

(2) It is internet-focused (thereby creating widest market reach).

(3) It focuses on underwriting standards and statistics.

(4) It provides its own economic and strategic benefits.

(5) It is transparency-inducing, without being transparency-requiring(each counterpart does precisely what they choose, in terms ofdisclosing their unique circumstance and being matched to or paying anappropriate price).

(6) It delivers increasingly granular real-time data and analytics forall financial products with primary and secondary markets.

(7) It is the lowest-cost method relative to all other solutions.

(8) It is entirely volitional.

(9) It carries the benefit of both organic and viral growth (caused bythe fact that trade participants always lower costs, gain revenues andmarket share; whereas non-participants lose).

(10) The public demonstrably wins through better pricing of goods andservices.

(11) It is easily adaptable to all current transaction platforms andtechnology.

(12) It can be initiated almost overnight, simply by executive mandate.

(13) It provides a stimulus (made clearest through an electronicdisplay) without any inflationary risk.

(14) It facilitates easy entry and exit of new product/services.

(15) It does not require additional expansion of government functions orbureaucracy.

(16) It is a private market solution; an American innovation.

(17) It tracks all market transactions, and forms a low-to-no-cost audittrail.

(18) It could look like a Government Sponsored Enterprise that sponsorstransparency, not needing to make financial guarantees, simplyvalidating that the information is disclosed anonymously.

(19) It can identify, predict, mitigate and, possibly, avoid risk.

(20) It is capable of presenting as a dedicated search engine forFinancial Services.

(21) It is friendly to and compatible with all financial market sectorsand risk transfers.

(22) It encourages massive market growth of all types of risk transferinstruments and securities.

The financial marketplace consists of numerous products that haveevolved out of the most basic designations of equity and debt. Productspecialization has resulted in linguistic and semantic differences,similar to those that can be found in different national languages inthe world's countries. The transactional conventions and methodologiesfor scoring and rating the products that are associated with thesedifferences can result in real price and term discontinuities, just asthey appear in society as different approaches with different meanings.As is well known to those in the trade, it is possible through one kindof financial engineering or another to change high risk assets into lowrisk ones through various kinds of aggregation, diversification, hedgingand division of risk. As a result, a single C risk can be re-configuredinto a product that appears to have AAA-risk characteristics. Of course,the individual asset retains the same characteristic that it always had;it is the pooled, re-configured and financially re-engineeredaggregation of products that is measured differently. The difference ismost easily seen as the analysis becomes increasingly granular. Thedisease that might infect one class or sub-class of assets may notnecessarily spread to the whole—and then again it might. The financialworld has now seen how this result can play out to disrupt the entiremarketplace in the subprime mortgage crisis of 2007-2008. This is aclear example of a financial “perfect storm”.

Separately, the invention focuses on giving individual financial productcharacteristics a more ordered methodology for analysis. In loans andlines of credit, insurance and reinsurance, and in related derivativeproducts, our work has looked at the creation of basic origination ofindividual financial products and secondary market approaches to comparethe characteristics of the individual risk into an associated productand to track the performance on both a past and a going forward basis inthe resulting product placements. The invention contemplates theestablishment of an electronic Transaction Credit system credit systemto generate liquidity; collecting underwriting standards and statisticalmeasures and connecting them to fees across all participating sectors ininsurance and reinsurance; operating and strategic relationships ininsurance between risk intermediation (brokerage), product originationand risk underwriting (insurer) and investor participation in narrowlydefined risk aspects (reinsurance); and, operating metrics in both themost complex and evolved instruments (mortgages) as well as other typesof loans, as creating a methodology for observing how inquiry can behandled and distributed in order to direct each product inquiry to aproper risk carrier.

This work facilitates product movement for the placement of variouskinds of risk into different types of financial products.

Additionally, focus is on the development of measures for predicting,mitigating and avoiding risks—and other products. Risks exist almostwithout limit in finance and financial market participants each lookat—and price—risk in a unique way. Risk avoiders, risk intermediariesand risk investors can be seen to be constantly engaged in a struggleeither to reduce or to add the perception of risk in order to charge fortheir ability to place it with a third party. The more the conventionsthat measure risk can be accepted and differentiated, the lower thecosts of all of the various forms of risk transfer.

Looking at the individual operating metrics of each risk intermediatorallows one to see when specific risks enter the financial food chain.Since humans perceive reality retrospectively, recently experienced andunderstood risks tend to appear larger than those in the more distantpast. In other words, identifying individual risks so that they can beplaced in the past facilitates both their pricing and theiridentification.

This kind of thinking is associated with Gaussian mathematic conceptswhich look at history in terms of a statistical past. Risk occurs, interms of this type of mathematics, in some kind of linear or“normalized” fashion that can be grouped in such classifications asstandard deviations. What needs to be understood is that, in fact, riskoccurs elliptically, in an irregular or non-symmetric fashion. Currentmeasures of risk look at either frequency or severity of risk; they donot account for both the frequency of the severity and/or the severityof the frequency. It can be predicted statistically when a hurricanewill hit the US. It can be predicted statistically when a hurricane willhit a city. Presently, it is not possible to predict when, like Katrinain New Orleans, a hurricane will hit a particular low-lying city andoverwhelm the levies, resulting in incomprehensible damage. That isbecause such a catastrophe has not even been imagined. Since humans pastreference their experience, calling it wisdom, they presently usehistory to project the future. This cannot be done, because the future,by its nature, has not necessarily been observed in the past. Expertshave judged that it will take 50 years of supercomputing to process suchrisk. The need to evaluate the risks properly is immediate. Thisinvention provides a solution.

Reference is made to a torus when considering risk analysis. This is ageometric surface and interior shaped like a donut. It is described as“a surface generated by rotating a circle about an axis that is in thesame plane as the circle but does not intersect it.” A torus resembles adonut and is a subtype of a toroid. On occasion, if one were graphingrisk in three dimensions, it would appear as a kind of oddly-shapedtoroid, bulging with each unique circumstance. Risk occurs this way. Inother words, the ordinary locus of points that describe the surface ofthis kind of object is pulled apart by a unique circumstance, in effecta particularized experienced risk that can be measured. Different typesof toruses should be studied as identifying different types of risk andrisk incidence.

Reference is made to LaGrangian Mathematics when considering riskanalysis as it describes movement tied to a constant structure (as eachfinancial product by definition can be seen as tied to a constantstructure)—something like a pendulum with movable support.

If one could connect all the elements of all the financial productorigination, transacting and processing platforms in real time andpresent the results graphically and compare them to the observedresults, one could measure when a risk “bulged”, expanded or stretched,or unduly constrained, stopped or established an illiquid circumstance(or similar price discontinuity), as measured by the shape of the donut.

This can be seen to apply to the Transaction Credit system credits thathave been referenced which have the capability of linking all types ofplatforms. A ubiquitous credit (one that is in widespread use) can beseen as a common tool for measuring market risk, by business etc.Credits in themselves can be used to create a single indicia with realor perceived predictive value. To help visualize, as ball bearings areto data so credits equal a magnet; and as ball bearings are to creditsso data is to a magnet—with each magnetic flow pulling the other throughthe system. Data flows toward those with credits and credits flow towardthose with data.

The invention contemplates a new kind of risk measurement—possiblypredictive, mitigative or avoiding.

Transaction credits link not just similar, but also dissimilar products,across all origination, transacting and processing financial andnon-financial platforms, inclusive of all types of goods and services.In other words, linkages are created between, not just one producthaving a primary and secondary market. Linkages are created between allfinancial products having primary and secondary markets. This allowscredits which are or can become more ubiquitous and universallyfungible. The credits may flow along more paths including cross-productpaths, enabling risk and financial product performance measurements thatlook beyond a single class of financial product and associated risks.

Credits are used to track business and non-business volumes and toobserve the various risk elements that comprise them. This has theeffect of using a credit to standardize different measures.

Comparable operating metrics, (which may be visualized as forming agraphic type of CAT scan) all types of origination, transacting andprocessing platforms—for financial and non-financial (commercial)products—are compared in real time when a risk is perceived, in order tosee if the risk, and specific performance of a financial ornon-financial product, can be related to the operations of any platform.This allows one to look inside the entire supply chain of financialproducts to see if a perceived risk can be linked to any particular typeof platform, industry, or type. The risk is perceived as a“bulging”—like an aneurism in a vein—in the toroid-type graphic analogy.It occurs, sometimes for limited durations, as a risk experience thatcan be adjusted to provided a Bayesian mathematic measure (one that isadjusted for the probability of the next occurrence.

Comparable market metrics (inclusive of gross movement by price or sizeare accomplished. Actual performance of given financial or non-financialproducts or instruments, by any measure, is identified in linguistic orsemantic terms and a search for like elements in differing products thenoccurs.

The invention considers all intersections of data, inclusive of bothoperating and market metrics as potentially risk predictive. Theinvention contemplates a new kind of hedge for the coming markettransparency and greater impact of risk prediction. The inventionincludes the following concepts:

1. an index comprised of financial Transaction Credit system credits;

2. an index comprised of non-financial Transaction Credit systemcredits;

3. an index comprising both financial and non-financial transaction andnon Transaction Credit system credits;

4. an index focused on operating metrics, as described above; and/or

5. various indices combining operating metrics and transacting credits.

The invention includes a new kind of targeted “search” tool forcomputers in which the search can be directed by the applicability foruse of the Transaction credit.

Transaction credits are used as a tracking measure for finance andcommerce and ordered by usage, number, size, type, etc. Market data,inclusive of Transaction Credit system credits and volumes, is embeddedin software that connects to a central database that is the searchengine. Searches are ordered by statistical relationships betweendiscrete market transactions, as measured by a Transaction Credit systemcredit/index. Searches are ordered by ranking credits according to thesize of the discounts they will buy on specific transaction fees/costs.Searches are ordered by the net cost, by product type, inclusive of thediscount given to a specific recipient.

The invention contemplates an environment in which the above toolexists. The invention further contemplates creating a new kind of“credit wallet” or “21st century money” that generates liquidity andasset valuations. This creates a new form of financial market currencythat embodies a type of barter that results in a preferred pricing oracceptable cash flow. Every person has a stock of credits for all theirassets: cash, real property, personal property, automobile, lifeinsurance, other insurance, stocks, bonds, other financial products,etc. which may be traded and for which there is an index for trading orexchange with transparency and data and information is given.

There is maintained a schedule or listing of all assets, financial,non-financial, commercial and collectable, as well as their remainingterms.

There is an effective real time pricing of the above, in which presentor past bids/offers are compared by software “spiders” searching allkinds of transaction platforms, auctions, sales etc.

In the inventive system, the search (including one that is semantic orlinguistic) is targeted by past credits. In the inventive system, thesearch may also be ordered by time necessary to clear and liquefy theasset. There is a consolidated display of associated pricing and currentvaluations that form a new kind of liquidity measure.

The invention contemplates a display of risk-related information fromvaried sources (data flows, marketplaces, analytic resources) and payingfor these service feeds through ubiquitous credits that accompany andcan relate to transaction fees for financial products.

All of the above system concepts may include varying the value of thecredit by the amount of the stated cost of a service to be absorbed.Additionally, the value of the credits may be varied by:

a. the conversion rate of the credit into a good, service or transactionfee;

b. the remaining term of the credit;

c. the present value of the combination of a and b (above);

d. the addition of one other factor having economic impact and known tothose familiar in the art; and/or

e. the weighting of the estimated incidence of risk.

The invention contemplates the above described methods and systemswherein the offset of credits from transaction fees referencesdifferences between varying types of financial products; wherein theoffset of credits from transaction fees references varying types of bothfinancial and non-financial products; and/or wherein the offset of feesin any one market sector is offset against the cost of access toinformation describing the transactions or the marketplace in general.

As mentioned above, the invention introduces a “credit wallet”, trackingin real time the individual, aggregate and remaining value and time ofunused credits—or discounts—of commercial value to offset the cost oftransactions:

designing a transaction system or electronic marketplace, specificallyto assign credit prices/designations from bonafide bids/offers, toenhance both liquidity and fungibility between different creditstructures;

a specific methodology for summing such credits to arrive at a neweffective net price;

by ranking size of acceptable or exchangeable credit;

the ordering of such pricings to inform or rank “search” functions on acomputer according to their effective net price; and/or

use in combination with a cell phone of similar personal communicationsmedium that identifies the specific user, assuring and establishingreal-time credit-worthiness, facilitating business dealings.

The invention devises a central market mechanism for credits and/ordiscounts:

inclusive and exclusive of one in which access to various services isoffered in exchange for consumer willingness to lower privacyrequirements (i.e. trading privacy restrictions for favorable pricing orsome kind).

The invention further contemplates operating as a valve separatingmarket sectors and their associated information flows.

A. A valve between market sectors opens and closes in such a way (as ifpulsing) that it induces increased transactions, data or analytic drawdowns or both.

B. It creates a measurement of the history of flows (stasis is not good)between the two sectors as a guide for providing price or terminducements.

C. It offers progressively more “granular” information and providesincreasingly refined product views.

D. The emphasis of the analytics will shift from improving operationaland volume performance to focus on strategic benefits, productpositioning, transaction patterns, and risk analysis.

E. Real time data and analytics are grown organically out of customerinquiry and will be sufficiently robust to compel usage by all industryparticipants.

F. A database displays and cross references all elements relevant topolicy issuance, including, without limitation: volumes, by broadproduct type or sub group, by region, by time, price, terms, type ofcounterpart, etc.; operating metrics; audit trails; and, in time, bothgranular and high level risk performance by loan or insurance product orborrower or insured type analyzed as far down as performance on theindividual loan or policy level.

In summary, there is a valve between market sectors which opens andcloses in such a way (pulsing) that it induces increased transactions,data or analytic draw downs or both; creates and enables a measurementof the history of flows (stasis is not good) between the sectors as aguide for providing price or term inducements. Real time data andanalytics grow organically out of customer inquiry and will besufficiently robust to compel usage by all industry participants.Electronic database displays and cross references all elements relevantto product and/or policy issuance, including, without limitation:volumes, by broad product type or sub group, by region, by time, price,terms, type of counterpart, etc.; operating metrics; audit trails; and,in time, both granular and high level risk performance by insuranceproduct or insured type analyzed as far down as performance on theindividual policy level offering progressively more “granular”information leading to increasingly refined product views. Over time theemphasis of the analytics shifts from improving operational and volumeperformance to focus on strategic benefits, product positioning,transaction patterns, and risk analysis.

The invention also contemplates measuring risk from inquiry throughloan/policy performance to reveal predictive aspects and individualtoxic risks.

A. The invention resolves the application/submission process.

B. It measures risk from-inquiry-through-loan/policy performance toreveal predictive aspects (an entirely new measure).

C. It offers progressively more “granular” information providesincreasingly refined and risk-descriptive and/or differentiated productviews.

D. Emphasis of the analytics will shift from improving operational andvolume performance to focus on strategic benefits, product positioning,transaction patterns, and risk analysis.

E. Real time data and analytics are grown organically out of customerinquiry and will be sufficiently robust to compel usage by all industryparticipants.

F. A database displays and cross references all elements relevant toloan or policy issuance, including, without limitation: volumes, bybroad product type or sub group, by region, by time, price, terms, typeof counterpart, etc.; operating metrics; audit trails; and, in time,both granular and high level risk performance by loan or insuranceproduct or borrower or insured type analyzed as far down as performanceon the individual policy level.

The invention resolves key inefficiencies of the multiple applicationsubmission process through the electronic compilation of inquiry andtransaction details; real time data and analytics grow organically outof customer inquiry and will be sufficiently robust to compel usage byall industry participants. An electronic database displays and crossreferences all elements relevant to product, loan and/or policyissuance, including, without limitation: volumes, by broad product typeor sub group, by region, by time, price, terms, type of counterpart,etc.; operating metrics; audit trails; and, in time, both granular andhigh level risk performance by insurance product or insured typeanalyzed as far down as performance on the individual policy leveloffering progressively more “granular” information leading toincreasingly refined product views. Over time the emphasis of theanalytics shifts from improving operational and volume performance tofocus on strategic benefits, product positioning, transaction patterns,and risk analysis.

The invention further contemplates:

A. Map and grade key lending/insurance product elements;

B. Map and grade key industry metrics;

C. Offering progressively more “granular” information providesincreasingly refined risk-differentiated product views, as well asassociated risk differentiated and risk specified cash, futures, optionand indexed markets;

D. Emphasis of the analytics will shift from improving operational andvolume performance to focus on strategic benefits, product positioning,transaction patterns, and, possibly as early as year 3, risk analysis;

E. Real time data and analytics grown organically out of customerinquiry and will be sufficiently robust to compel usage by all industryparticipants;

F. Database displays and cross references all elements relevant to loanor policy issuance, including, without limitation: volumes, by broadproduct type or sub group, by region, by time, price, terms, type ofcounterpart, etc.; operating metrics; audit trails; and, in time, bothgranular and high level risk performance by loan or insurance product orborrower or insured type analyzed as far down as performance on theindividual loan or policy level.

The invention allows the user to map and grade key lending/insuranceproduct elements and map and grade key industry metrics: Real time dataand analytics grow organically out of customer inquiry and will besufficiently robust to compel usage by all industry participants.Electronic database displays and cross references all elements relevantto product and/or policy issuance, including, without limitation:volumes, by broad product type or sub group, by region, by time, price,terms, type of counterpart, etc.; operating metrics; audit trails; and,in time, both granular and high level risk performance by insuranceproduct or insured type analyzed as far down as performance on theindividual policy level offering progressively more “granular”information leading to increasingly refined product views. Over time theemphasis of the analytics shifts from improving operational and volumeperformance to focus on strategic benefits, product positioning,transaction patterns, and risk analysis.

The invention further includes positioning a search function incyberspace as an exchange. The search function serves to:

direct all transactional and informational flows to improve marketknowledge and business efficiencies;

give the borrower/insured—or their designee—a choice on resolving theloan application/insurance submission process;

take the information resulting from this resolution of multipleapplication or policy submissions and replay it in the form of anonymousindustry real time inquiry or transaction analytics;

require increasing levels of volumes of closed transactions fromexchange participants;

price the service so as to provide incentives for transacting inproducts where there is limited use (give it away at first, then priceas the data and analytics become more valuable);

devise a valve between any two market sectors that opens and closes insuch a way (pulsing) that it induces increased transactions, data oranalytic draw downs or both (The system creates a measurement of thehistory of flows (stasis is not good) between the two sectors as a guidefor providing price or term inducements.);

measure risk from inquiry through loan/policy performance to revealpredictive aspects;

return an equal dollar override on all exchange profits to broker andcarrier members (thus advantaging smaller members who derive an overrideon high levels of transactions) but compensate those with larger volumewith access to more market information (to their strategic benefit);

map and grade key lending/insurance product elements; and/or

map and grade key industry metrics.

Using the concepts disclosed in the patent for a “Data Processing SystemFor Making the Market For Insurance and Reinsurance More Efficient”incorporated by reference herein above as a guide for structure, theinvention intends the following:

1. To partner with all strategically appropriate entities, whereverpossible, to expedite development of an exchange (ECN), and to buildmarket presence and transaction volume. For example, one of the earliestchallenges is resolving issues for brokers and carriers surroundingmultiple policy submissions (complete with relevant customer-driven data“sorts”), issuance, and maintenance for insurance policies to beinclusive of claims payment data or similar for loan types and the percontract cash flow performance.

2. To present a familiar, intuitive interface of service to any industryparticipant.

3. In the first three years, to develop the interface of system softwareas early on as possible, to facilitate industry use of the ECN, and thusto capture, analyze and display in real time a variety of marketelements of critical interest to industry participants. In year three,dependent on system development and sophistication, an intense marketingeffort will accompany each new system rollout.

4. Progressively more “granular” information will provide increasinglyrefined product views. In addition to the 40,000+ brokers and 8000-oddinsurers, this information will be of keen interest to: productdevelopers; market and risk analysts; data miners; rating companies;investment bankers; security market traders and analysts; regulatorsfrom 55 states and jurisdictions; and, electronic and print distributioncompanies focused on business information. Over time, the emphasis ofthe analytics will gradually shift from improving operational and volumeperformance to include a focus on strategic benefits, productpositioning, transaction patterns, and, possibly as early as year 3,risk analysis. The data that is to be collected and displayed will groworganically out of customer inquiry. In time the unique, real time dataand analytics will be sufficiently robust as to compel usage by allindustry participants.

5. The second five years will build on this base and extend it into newmarket areas all of which have been previously referenced: a greaterfocus on data base sales and infomediary functions; building additionalstrategic interfaces; and, an entry into both international markets andreinsurance. The necessary information flows naturally out of thecompany's intention to develop or partner on resolving the issue ofmultiple submissions and issuance of insurance policies. The individualdata elements, including anything that can even broadly be consideredunderwriting data, as well as volumes can be aggregated and analyzed asa function of handling the submission. This database can be contrasted,through its granularity, with the currently available high level carrierdeveloped and regulator aggregated information. Because of an initialbroker customer interface, as well as an intended future agencymanagement system relationships, claims-paying analytics as a predictivetool will be used to begin enhancing the exchange entry into both theglobal and the reinsurance market. A comparable and equivalent model mayexist for the lending sector, both primary and secondary markets, downto a per contract level.

The model is designed to develop a database that displays andcross-references all elements relevant to policy issuance, including,without limitation: volumes, by broad product type or sub group, byregion, by time, price, terms, type of counterpart, etc.; operatingmetrics; audit trails; and, in time, both granular and high level riskperformance by insurance product or insured type analyzed as far down asperformance on the individual policy level. A comparable and equivalentmodel may exist for the lending sector, both primary and secondarymarkets, down to a percontract level.

There are several aspects to the confidential strategy and proprietarydrivers that need to be explained:

1. Use of an electronic communications structure;

2. All market access fees (other than initial broker or carriermembership fees) are paid by the borrowers or insureds;

3. The size of these fees will be based on “shadow” credits equal to acertain 50 to possible 75 basis points (0.5 to 0.75%) of premiumcharged;

4. These credits will be used to offset charges of what will beinitially very high level but, over time, increasingly detailedstatistics available to the trade;

5. Initially the charges for the data will be low, allowing widespreadaccess to the information, at first virtually given away to gainexperience;

6. Reactions to, and requests for, data and analytics will be closelymonitored to guide future growth;

7. This information flows naturally out of the intention to develop orpartner on resolving the issue of multiple submissions and issuance ofinsurance policies as the individual data elements and volumes can beaggregated and analyzed as a function of handling the submission. Thisdatabase can be contrasted, through its granularity, with the currentlyavailable high level carrier developed and offered and regulatoraggregated information or the equivalent lender developed and offeredinformation. Because of an initial broker customer interface—and futureagency management system relationships, claims-paying analytics as apredictive tool will be used to begin enhancing the exchange entry intoboth the global and the reinsurance market. Similarly, in lending, perasset cash flows will be measured in real-time to determine value.

8. Over time, and through normal growth, small brokers (or,alternatively, insurers/reinsurers) gain a significant tool for levelingthe playing ground for insurer/reinsurers (or, alternatively, broker)access. However, they have a relatively limited ability to buyincreasingly sophisticated and significant data and analytics usingtheir credits—because they don't do sufficient business in term ofdollar volumes to generate enough credits. They pay dollars for access;

9. Over time, and through normal growth, large brokers (and,alternatively, insurers/reinsurers) gain a significant tool for levelingthe playing ground for competing in the middle market and for smalleraccounts and have a wider-than-normal range of insurer/reinsurers (and,alternatively, broker) access. They have an enhanced ability to buysignificant data and analytics because the dollar size of their creditsis greater than (therefore it buys more information) that of theirsmaller, competitors;

10. This information flows naturally out of the initial intention of thecompany to develop or partner on resolving the issue of multiplesubmissions and issuance of insurance policies. Then, the individualdata elements and volumes can be aggregated and analyzed as a functionof handling the submission. (This database can be contrasted, throughits granularity, with the currently available high level carrierdeveloped and offered and regulator aggregated information. Because ofour initial broker customer interface—and future agency managementsystem relationships, claims-paying analytics as a predictive tool willbe used to begin enhancing the exchange entry into both the global andthe reinsurance market.); Similarly, in lending, per asset cash flowswill be measured in real-time to determine value.

11. The ever-increasing data flow results in improved granularity ofinformation;

12. A constantly more detailed database permits all participants to see“where they are, where they are not, and where they should be” in termsof industry products, services and operating metrics and to developderivative markets;

13. Volume is driven through the exchange by either advantageouslyraising/lowering the cost or increasing/shortening the term of eitherthe exchange access or “infomediary” fees to drive volumes from onesector to the other; and,

14. While the insurance exchange has the capacity from the outset to “goglobal”, a robust database and partnering with agency management systemscreates an increasingly unique inquiry-through-policy performance marketview that enhances risk analysis and is likely to be of interest toinsurers/reinsurers. This helps create a specific road to future entryinto the international insurance/reinsurance. Similarly, in lending, perasset cash flows will be measured in real-time to determine value andimprove risk analytics.

The interaction of the different parts of the model system and methodtransforms the market for insurance or lending into a highly efficientone with higher levels of submissions bound or loans closed and reduces“failure-to-close” levels. The model marketplace presents a familiar andintuitive operating platform that requires no internal reorganizationfrom clients while supporting the creation of a common language andmarket standardization for participants. Any changes in businesspractices are organic.

The particular linkage of market sectors, plus the concept of providingmarket-driven access to key data, can be expected to encourage highlevels of volume and associated information through the marketplace,resulting in an anonymous, critically important, proprietary database ofinsurance inquiry and activity across a full policy life cycle frominitial inquiry throughout final disposition.

The database enables participants who originate insurance to moregranularly match the needs of insureds to appropriate insurers againstmore precise market pricing and underwriting or risk profiles. This, inturn provides industry participants the unique opportunity to “map”, inreal-time, all insurance “coordinates” and to correctly position theirinsurance inquiries and products in the marketplace for maximum effect.The equivalent phenomenon facilitates origination in loan markets andsecondary market placement.

The database provides transaction information and economic insights thatare more immediate, better, broader and more targeted than anycomparable data. This layered database, available only to participants,reveals market information that can give significant strategic advantageto: brokers, insurance and reinsurance carriers (especially for productpositioning, risk management, and market analysis). It also creates areal-time audit trail, facilitating and lowering the cost of regulation.The equivalent phenomenon facilitates origination in loan markets andsecondary market placement.

The invention contemplates use and creation of “the valve” to controlthe interaction between transactions and data flows.

The ability to assess risk by looking at the insurance policy life spanfrom the initial inquiry through issuance and claims paying history isnew (across multiple insurance companies, brokers, reinsurers andregulators). Heretofore, policy performance was assessed retrospectivelyand in the aggregate from data provided by individual carriers to thetrade. The data was broadly undifferentiated except for issuance date,product, state, etc. With capture and retention of granular inquirycomponents, analysis of risk can be implied historically—starting withthe inquiry. The same occurs for lending even on a per contract or loanlevel experience.

Differentiating granular policy inquiry, submission or issuancecomponents brings the ability to better target the matching of insuredto carrier as well as to determine un-served or underserved marketniches. The greater the differentiation, the more easily are the matchesas well as the niches exposed.

Displaying what's going on in the marketplace in real-time lets marketparticipants see where they are, where they are not, and where theyshould be. As a result, market intelligence is disseminated faster andbetter and market positioning is improved.

The invention facilitates the capture of all data associated with atransaction and aggregates, and recycles the information to help createnew products or other market possibilities. It provides betteropportunity for targeted growth at lower acquisition costs. It providesimproved ability to determine competitive position in marketplace. Itprovides improved accuracy of submissions and underwriting information.More granularly matches insurer risk transfer needs to reinsurers. Theinvention increases customer retention. More granularly matches insuredsto insurers against more precise market pricing and underwriting. Theinvention enhances ability to monitor the effects of competition. Theinvention, further, yields lower marketing and communication costs. Itrenders low cost and anonymous entry and exit for new products andservices.

Using the invention, there will be quicker turnaround time for receivingquotes; more competitive quotes for insureds to consider from themarketplace; more efficient processing of policies, endorsements, andclaims; and perhaps most importantly, the insureds will know and be ableto see that their insurance package was competitive with themarketplace. Over the long-term, the ECN should drive cost out of thesystem just from the sheer efficiencies and create more competitiveproducts that should ultimately reduce the cost of insurance productsfor everyone.

Additional market intelligence reports will be available regarding:individual agent and broker hit ratios (i.e. risks offered vs. thoseactually written by insurer, by line of business, by type of risk); riskplacement declinations by insurer and agent/broker, includingdeclination reasons; performance-to-sales goals, giving year-to-datecomparisons of insurer placements vs. goals; and many more.

The invention:

Creates faster turnaround time and increased accuracy for quotes,business processing, insurance and reinsurance submissions;

Enables more efficient and accurate communication between brokers,insurers and reinsurers;

Recognizes risk characteristic differences in the submission of aparticular risk by multiple insurance intermediaries and rejects theincorrect/incomplete ones, controlling the integrity of the marketplace;

Corrects lack of control over electronic documentation flow;

Uses market disclosure by anonymous counterparts to improve matching andtransparency;

Provides analytics that are presented anonymously except to appropriateregulators;

Provides verifiable audit trail to facilitate regulatory oversight andsupport for customer inquiry;

Analyzes submission/quoting process for individual participant carriersto determine the competitive and non-competitive risk bidding variables;

Increases issuance and servicing efficiencies;

Maps, in real-time, all insurance co-ordinates and correctly positionsinsurance inquiries in marketplace;

Preserves the individual underwriting criteria and guidelines of theinsurance companies;

Provides ability to benchmark;

Improves oversight of business to broker, broker to insurer, and insurerto reinsurer transactions; and/or

Provides metrics that measure operating performance.

Multiple policy submission problems are resolved (without a brokerfunctioning as an intermediary) and the resulting data is displayed toparticipants with the credits from transactions somewhat offsetting thecost of data and analytic access.

There are several aspects of the invention to mention:

1. All market access fees (other than initial broker or carriermembership fees) are paid by the insureds in the form of an exchangeaccess fee which may differ from a commission on an exchange;

2. The size of these fees will be based on “shadow” credits equal to thedollars of the exchange fees charged and exchangeable into credits;

3. These credits will be used to offset charges of what will beinitially very high level but, over time, increasingly detailedstatistics (granularity and its greater value for identifying pockets ofadvantage);

4. Initially the charges for the data will be low, allowing widespreadaccess to the information—which will be so high level that it will bevirtually given away. However, as the database becomes more robust theprice of database access is increased;

5. Reactions to, and requests for, exchange data and analytics will beclosely monitored to guide future growth;

6. Over time, and through normal growth in an exchange setting, smallbrokers gain a significant tool for leveling the playing ground forincreased insurer/reinsurers access. Similarly, insurers/reinsurers gaina significant tool for leveling the playing ground for increased brokeraccess. However, small market participants have a relatively limitedability to buy increasingly sophisticated and significant data andanalytics using their credits—because they don't do sufficient businessin term of dollar volumes to create enough credits to buy much data. Asa result, they pay incremental dollars for access. This is the keymethod for offsetting the fact that both small and large brokers(carriers) receive the same market share at a controlled price. However,the larger participants gain access to more data and analytics becausethey do much more business in terms of absolute dollars even when theirpercentages are equal to those of other market participants;

7. Over time, and through normal growth, large brokers gain asignificant tool for leveling the playing ground for competing in themiddle market and for smaller accounts and have a wider-than-normalrange of insurer/reinsurers access. Similarly, large insurers andresinsurers have an enhanced ability to buy significant data andanalytics because the dollar size of their credits is greater than(therefore buys more) that of their smaller participants includingsmaller brokers. This “netback” of information for dollars ispotentially new and integral to our invention. It is not obvious thatlarge brokers would prefer access to more information than a greaterprofit share but in fact they do and this invention is centered aroundthat fact. This is because the information can lead to increased productcreation or differentiation which in turn can lead back to more profitshare through enhanced strategic positioning and diminished risktransfer costs.

8. All brokers agree as part of their membership contract to flow aminimum, and growing, percentage (from 2% to 50% over ten years) oftheir property and casualty business through the exchange;

9. The ever increasing data flow results in improved granularity ofinformation—and granularity creates new market opportunities;

10. An increasingly detailed database permits all participants to see“where they are, where they are not, and where they should be” in termsof industry products, services and operating metrics and to developderivative markets;

11. Volume is driven through the exchange by either advantageouslyraising/lowering the cost or increasing/shortening the term of eitherthe exchange access or “infomediary” fees; and

12. While the exchange has had the capacity from the outset to “goglobal”, a robust database and partnering with agency management systemscreates an increasingly unique inquiry-through-policy-performance marketview that enhances risk analysis and is likely to be of interest toinsurers/reinsurers. Resolution of multiple policy submissions, etc.also looks at comparative industry metrics in real time. This helpscreate a place for a future and international insurance/reinsuranceexchange.

The loan and line of credit-focused invention extends the linkedmarketplace from consumer through transaction platform to a clearancebank and end user investor. It induces involvement in exchanges bymaking critical market data available to transacting members on aconditional (i.e. time, price, by circumstance, etc.) basis.

The invention is a data processing system that collects the full rangeof industry data (i.e. the approximately 100,000 types of loanstructures (mortgages are one example), line of credit or individualinsurance product down to the policy level) and runs that data through acommon sieve.

Drawing down from a plurality of lenders and insurers, it gives apicture of market activity.

Government reporting is necessary. Today the insurance regulators reportonly what insurers or third party “alleged” experts tell them are thefacts. The industry stands on a threshold of facing massive regulatoryoperating constraints. The NAIC collects 100,000 cells of informationper insurer and product. The NAICs database still is unable to tietransactions together because it doesn't actual track the position ofproducts in the marketplace or connect their performance in near time orreal-time. Similarly, it is entirely dependent on third party reportingto assess values. This raises significant solvency systemic risks thatneed to be immediately resolved,

The system and, separately, an insurance/reinsurance system puts allfinancial products through a related and in some cases common sieve,through a funnel that measures the attributes that are associated witheach data report and system credit, whereby one can measure theattributes of each transaction against the same or similar attributes ofother transactions, then the entire structure and the placement of eachproduct all becomes much more efficient. The attributes may bedefinitional standards such as size of transaction; technical standards,such as loan-to-value, debt-to-income, credit score; or Governmentalstandards, such as FHL or Fanny Mea eligible or percentage of governmentguarantee. Granularity of information makes the market easier tomonitor. Importantly, to regulators, one of the political fall outs ofSpitzer's investigations was Congress blame of state oversight. Even ifCongress wanted to, it cannot solve these economic problems in aninformational vacuum.

The invention compares multiple insurers/lender, their products andattributes and permits the insurance/loan seeker to choose the one thathas the attributes or underwriting standards that are important to him.

Any regulator of financial products can use their signals from commonlycaptured data. Spider software can look in up to now closed files suchas pdf files with semantic searches to find attributes and reveal riskcharacteristics. Financial products are searched for their attributes toreveal risks. Analytics can be defined going forward.

The invention contemplates a system for valuing, the placement and/orperformance of insurance/reinsurance and/or loans/lines of credit bysuch factors familiar to those skilled in the art:

by what risk factors,

by what delivery means or channel,

with what claims history per premium dollar,

by product,

by ROE or ROI,

by what diversification,

by what reinsurance counterpart,

by what rating,

by what time frame from inquiry to placement, and/or

as a factor of the time per term per product.

The power to change individual pricing in real time by state or localityor other factor or combination of factors results in greater control ofrisk diversification. Risk is measured from initial inquiry throughissuance to clearing house to registry, with or without performancehistory—thus yielding full transparency across life cycle.

The invention uses progressive granularity and availability ofinformation to induce usage. It uses netbacking to induce usage. Itprovides convergence of information flows. It uses information flows tomove profit margins away from products. The invention is capable ofestablishing a universal clearing house for all financial products.

Despite potentially enabling technologies, it is presently impossible invirtually any industry to assess the entire food chain from initialinquiry to application through pricing, funding, product fulfillment,registration and subsequent performance. The result is an inability tojudge or compare across products, services and industries: conversionsat each step of the process, pull-throughs to completed orders,effectiveness and subsequent performance of specific wares, types ofassistance and markets. The invention addresses these problems.

The invention identifies fundamental problems in the financial servicesand insurance markets and offers a solution. Many of the problems in themarkets arise from inadequate information, inaccessible information, andno current (real-time) information. Regulators are obliged to rely onhistorical data, available to them only well after the fact, and only tothe degree that the regulated entity allows access to information aboutoperations. This limited and untimely access to information inhibits theefficacy of regulatory initiatives. The inability to accuratelydetermine pricing or transaction terms, contributes to marketilliquidity and operating inefficiencies for market makers. All marketparticipants are negatively impacted by their inability to accesssufficient information to allow accurate pricing.

The invention's solution creates Transaction Credit system credits whichprovide immediate economic benefit to the market participant. This isaccomplished by linking information to each and every fee charged for atransaction. The credits and the database are displayed electronically.These credits act as a unique, multi-faceted mechanism for accessing alldata and activity in the system. The result is increased transparency ofthe markets.

Use of the credits, which offset the cost of future transaction fees, orthe cost of information, encourages more transactions, generates moremarket data, and demonstrably improves market liquidity, calmingmarkets. The Transaction Credit system credits act as an unobtrusivewindow into market activity for regulators. Market-makers use of thecredits effectively promotes additional transactions which pump moremoney into the system.

This invention is adaptable to any operating system, drives businessvolumes and directs market shares. It lowers operating costs andimproves operating controls. The unique transaction platform anddatabase functions as a central information clearing facility forfinancial product. Each transaction is “tagged” with a TransactionCredit system credit and both the data and the Transaction Credit systemcredits are displayed. The system enables the unique, real-timemonitoring of market and transaction data. All market participantsbenefit from access to this better and more timely information,resulting in more accurate pricing, as well as improved risk prediction,mitigation and avoidance.

The job of regulators is becoming more complex and sophisticated asinsurance and capital markets converge. Insurers are increasinglyinvolved in investing in, and/or insuring, capital markets products. Buthere too the market has not successfully cleared the risks. The currentcrisis can be seen to be rooted in the fact that we have organized thebroad financial marketplace into discrete silos that do not properlylink transactions and free-flowing information. Each party defines theirbusiness circumstance uniquely—and to their own benefit. Separateorganizations each fly their own flag and ardently refuse to cooperatein a consistent way, except to add individualized costs to eachtransaction, each trying to convince the customer of the value of theirinstitution alone. Most every consumer and market participant has hadthe experience of the exasperating, bewildering search across thefinancial food chain for an appropriately-priced product and a targetedexecution for their unique needs.

If, as it is often said, fear and greed rule the markets, then surely atime of potential global collapse presents a real opportunity tore-write the rules, using correct and appropriate definitions, and usingmodern tools and logical incentives to restore calm. This same fear andgreed also impedes recovery as there is currently no alternative,unified system that exists for transacting that also gathers andanalyses all information in real time.

THE SOLUTION OF THE INVENTION

The invention is a free market solution for the freeing of marketinformation flows so that they are added back to the contract in neartime or real time after it has been formed. This is not about additionallegislation or additional regulatory bodies or enlarging the federalgovernment. This is about enabling the existing state regulatory bodiesto fulfill their mandates by putting in place appropriate and necessary21st century information tools.

In about October, 2004, Eliot Spitzer found alleged fraud in theinsurance industry and blamed the state regulators for missing it.Further financial problems were encountered with Hurricane Katrina. Morerecently the housing mortgage crisis has evolved. The need for theinvention grows with the severity of the current financial crisis. Theinvention includes notions of transparency. The inventive approachadvances market clarity, risk analytics, principle-based accounting, andmuch more.

The invention focuses on creating solutions to the fundamental problemsof the insurance and financial services markets of the last 10 years.The invention includes the methodology for an electronically-presentedinsurance data exchange that unites buyers, brokers, insurers andre-insurers for the sole purpose of creating data and statistics toclarify policy terms, price, and underwriting standards—and to reducecosts.

The answer to the financial crises, a clear andnaturally-grown-through-competitive-forces solution, lies in theproposed tracking credit that follows a transaction, carrying aneconomic benefit and identifying all descriptive aspects of price, termsconditions and final asset performance. Counterparts that can elect tobe transparent (including all product providers and consumers) can beencouraged with pure economic benefit to provide whatever regulatorydetails are deemed necessary to comply with both established andevolving rules. The economic incentives occur in the form of clearlylower costs and can be further supported by a broad range of otherregulatory incentives.

All regulators need to see and be able to understand ALL elements offinancial product creation and performance in order to begin todetermine both investment suitability of the particular financialproduct for insurers and/or proper risk analysis and pricing for theconsumer, as well as proper market conduct.

The regulatory body such as the NAIC might consider sponsoring a searchfor ALL appropriate market analytics, as determined by all questions andcomplaints offered by all parties. The “Infomediary” piece of theinventive model focuses on this kind of transparency and, over time, newproducts and services will grow to support more granular information. Atpresent, the regulators do not understand how the products in which theinsurance companies invest are created—or by what standards. Here is anexample: rating agencies and regulators alike routinely accept 99.9% or99.99% product performance assurances offered by product providers,lenders, insurers, investment banks, etc. But, doing the mathematics,one can see this actually means that losses of one in one thousand orone in ten thousand risks are considered acceptable. As the subprimemarket debacle shows, massive markets (such as credit derivatives, bondsinsurance, securitization, municipals, etc) can be disabled with thissort of seemingly safe risk when it is played out against magnitudes ofmulti-trillion dollar markets. (There have been more than $700 trillionin derivative risk instruments owned world-wide.)

The invention proposes that all market participants open theirloan-qualifying and risk transfer underwriting standards, as well astheir associated contract prices, terms and conditions, to one anotherin a system. Transparency and market standardization used jointly areproven method of increasing business volumes and lowering the costs ofrisk transfers. When accompanied by the patented comparative focus onunderwriting standards and statistics across all forms of financialcontracts and paired with the patent pending claimed inducements foruse, the system works to deliver a seamless whole. The demonstratedapproach works, as well, for all financial instruments having primaryand secondary markets and market intermediation, as well as for relatedderivative securities. It is intended that such a system be entirelyvolitional. It will experience a natural growth curve, because tradeparticipants will be clearly advantaged by greater market share andconsumer acceptance—as well as access to increasingly important anddetailed strategic market data and analytics. Financial marketregulators must be able to access and understand both transactional andoperational process down to the smallest metrics if they are tosafeguard the system.

The inventive model rewards transacting counterparts who are willing tobe transparent with more business at lower prices. The competitiveprocess will grow volumes, reduce the costs and significantly increasegross profits—but at lower spreads. Ratification that the entire process(from earliest inquiry to final placement with an investor) is in fullcompliance with current regulation, offering transparent, competitiveterms and conditions, can be easily signified, at-low-to-almost-no-cost,to the marketplace. The invention proposes using what we call “The Sealof the Deal™”. This proposed two-part process begins with a “Deal Seal™”that confirms that the product origination process is orderly andconforms with accepted rules of fair practice from earliest inquiry,going forward; while the designation “Deal Sealed™”, the second part,means that all transactions and performance characteristics are beingtracked, monitored and fed into a universal database (in a way thatcomplies with the most current regulation). The resulting databaseimproves financial risk prediction, mitigation and avoidance by flaggingall discontinuities in market function. The designation and the data canbe under regulatory control, with the financial trade paying to displaythe designation.

The key feature of these models is a credit system that demonstrablyreduces costs to all participants, as it improves information (i.e.transparency). It is the engine and the fuel for all these models.Comparable to credit card incentives, this visible electronic real-timedisplay of Transaction Credit system credits derived from transactionfees is accessible from each transaction platform—each business silo—andis unique to and for each user.

The credits “buy” lower fees for the next transaction and/or for accessto strategically critical market information. The credits are defined byeach recipient of a fee for each transacting client—and these creditscan, optionally, “travel” across transaction and product processingplatforms, at the sole discretion of each business. The credits have theeffect of creating strategic alliance treaties between competingbusiness models, bringing the markets together, and functioning asubiquitous tracking devices.

This is a linking technology. Transaction credits work as simply aspaper clips or Post-It Notes® and can connect transactions ininnumerable ways like some present day financial “Velcro®”. Theyincrease market participation and reward the transparent, activecustomer most. Importantly, since the credit assignment and theirrespective term are under the direct control of the management, marketshares can actually be directed to underserved sections of a business.

Addressing the de facto threat of a dysfunctional financial systemprovides a historic opportunity for states to provide leadership in thecreation of a solution. There is precedence for the states assertingsuch leadership.

The invention contemplate re-building a software platform in a mannerthat conforms to the ideas described herein: “a transaction platformlinked to market information.”

The interests of the nation and the financial services industry can befurther enabled by beginning to distribute the risk transfer of the $200trillion market of catastrophic environmental risks with carefullydefined and carefully controlled products. The markets can be grown outof their present dilemma. The cost of distribution of these instruments(as well as the costs of past mistakes) can only be borne by trulytransparent markets that price risk appropriately. Importantly, thereare lessons to be learned from the current crisis that must never berepeated, if the nation—in the form of the integrity of its currency, acountry's most basic measure of value—is to survive.

Confidence comes with transparency.

Transparency comes with increasingly defined granular marketinformation.

Free flowing information alone can restore confidence in, and restorecalm to the markets.

Creating systems and solutions that support the development of financialproducts addressing the problems positions both the nation and the worldto re-focus priorities and actually grow markets going forward.

The key problems left unaddressed by current regulatory structures are:

a. Financial markets regulators must have access to appropriate andreasonably granular market information, including comparative analytics,performance reviews (by individual investments), operating metrics, etc.At a minimum, there must be contractual clarity (to properly assessissues of moral hazard and risk), as well as real markets, preferablyprice and terms in real time. Because regulators do not currently haveaccess to sufficient data they appear frequently too overwhelmed tothink: regulation suffers.

b. Financial markets regulators often leave their jobs to go to work forthe institutions they regulate, meaning that their results can (howeverunwittingly) be biased in their analysis in favor of the institutionsthey regulate. (An example: Recently, an insurer declared that a $2million life insurance policy had lapsed, while electronically generatedbank records proved the contrary. Absent any appropriate statistics onlapse rates, the regulators found for the insurer, refusing tocross-reference the records provided that reveal a fraud against thisconsumer. The Attorney General has since written in behalf of theinsured to the Insurance Commissioner and the matter will be reviewed.But statistical analysis of comparative lapse rates would presumablyreveal the reason behind the insurer's bias.)

c. Financial markets regulators often permit regulated entities todetermine the rules by which they are regulated—meaning that even thosewho might abuse the system for financial advantage get to opine freelyon how the measures are to be interpreted.

d. Financial markets regulators consider measures of a 99.9 or 99.99percent statistical certainty of risk avoidance to be appropriate.However, this level of certainty still allow for errors in between 1 ina 1000 and 1 in 10,000 circumstances. That result is unacceptably whenimplicating multi-trillion dollar risks or markets.

e. The frequency of occurrence for a peril or hazard is different than ameasure of frequency occurrence for a particular risk of a particularseverity.

f. Experts claim it will take 50 years to move from current statisticalmeasures (Gaussian math) to ones that properly predict the frequency ofa particular risk severity.

g. Data density increases dynamically the perception of frequency of arisk (i.e. today's more sensitive measures make risk seem to occur moreoften).

Market convergence has not caused “straight-through processing” infinancial services, or any unifying force that connects thetransactional food chain and would reduce wholesale and retail sectorcosts in insurance and reinsurance, loans and lines of credit.

The way that regulation functions means that the framework is constantlyfragmented. This is called the retail/wholesale market disconnect. (Forexample, in capital markets, there is currently no price/term discoveryacross market sectors, meaning the critical linkage is lost between:time; initial inquiry; primary market execution with price anddescription of risk; subsequent performance of risk; secondary marketpricing of risk; etc. If these separate market aspects were connected bya clear economic benefit; costs would come down, volumes wouldincrease.)

Current risk measures are proven inadequate by the nature of the currentglobal crisis. Holding companies must all use comparable measures withclear explanations for any divergences from a standard.

A methodology must be used that connects all links in the marketplacechain in a seamless process that encourages market efficiency throughpure economic benefit. The invention creates a related, market solutionfor the insurance industry.

Key objectives of financial regulation are:

a. Price/term discovery;

b. Standardization of work and process flows, operating metrics,underwriting standards, risk and performance measures, documents, etc.

c. Clarity of risk description;

d. Operating efficiency; and

e. Ease and cost of audit.

Government guaranteed institutions must have at least thesame—preferably stronger—standards than those that exist forun-guaranteed institutions.

The cost of money is the stabilizing element for all unregulatedinstitutions because it is presumed to be correct, risk variable andmarket priced (except for fraud).

Granular data, analysis and operating metrics are a requirement forproper market oversight.

The absence of data and analytics and uniform work and process flowmeasures consistently blinds regulation—just as it impedes themarketplace where best information is a proven determinant ofperformance. The invention proposes use of a Transaction Credit systemcredit that buys access to both lower next transaction costs and lowercosts of access to information. This approach should result in a “viral”adoption of a uniform set of basic principles of regulation.

The consumer has his interest consistently ill-served by financialmarket regulators (at least when it comes to insurance andbanking/lending markets) because the markets remain opaque. Injection oftransparency, strategic market intelligence that reveal criticalinformation and advantage, needs to be structurally induced with aneconomic incentive.

State regulators are the “critical canary in the (financial) birdcage”on a local level, as no federal response is presently available.However, any form of regulation is impossible without access to properdata and analytics.

The United States is the acknowledged leader in both market creation andtechnology. It should use these strengths to define and re-define theregulatory (and transactional) space to meet its needs. The recent salesof transaction platforms to foreign interests indicate the value ofthese assets. Keeping them under domestic control can best occur bylinking transactions (The Financial Marketplace) to information(Technology).

Depository Institutions

Various structural approaches to the existence of depositoryinstitutions can co-exist if there are common visible marketplaces, withdata and analytics that reflect the precise financial circumstance,along with standardized documents, clearance functions, etc.

The optimal approach to all markets is that they are wild and free,volatile, visible and subject to legitimate market forces (includingfear and greed).

If the above is true, central bank regulation is able to better focus onpolicy issues, leaving transactional detailed analysis to localauthorities or appropriate agencies.

No solution is appropriate if it does not have conventions that actuallyinduce usage through economic and strategic benefit in the on-goingcreation of an efficient, transparent marketplace.

The consumer must always receive a proper regulatory response and,should that response not occur, the consumer needs recourse throughmultiple branches of government.

Insurance

Federal interests must focus on limiting all possibility for subsidizedmarkets. Insurance and banking—like all financial services—are best leftwild and free, where competitive forces prevail over time.

All markets need more operating and pricing efficiency—and this comesfrom lower costs, which clearly and inevitably, results from theapproach of the invention.

Securities and Futures

All financial markets are united in the sense that they providedifferent solutions to risk transfer: standardize the marketplace andyou standardize products and operations. Some risks are local andrequire state regulation. All solutions require standardization of workand process flows and the resulting descriptions, data/analytics andoperating metrics. Regulation is always best when it is limited by anyparticular need, other than a search for what actually is occurring inthe marketplace. This can only happen in an efficient market—one that isgoverned by the rational search for the incremental profit dollar.

All regulation must be balanced, weighing the needs of the consumer atleast equally with that of the institutional investor. All marketsectors need to be united and subject to a common measure, one thatfinds them “the best deal” at the lowest cost. Liquid cash markets leadto liquid futures markets, which in turn lead to liquid options markets.This can only occur when the arbitrage between the sectors is exposed tocompetitive threat, which occurs when the sectors are madetransparent—as can happen immediately by using the solution of theinvention in a visible setting that evidences clear economic benefit.

Moore's Law initially postulated doubling data chip densities every 18months. Decades later, this law has placed massive data density in thehands of the potential analyst. Still, there remains no consistentapproach to unite, collect and deploy the data and use it to clarifyfinancial markets. This must change if the marketplace is to properlyclear the necessary risks in a cost-efficient manner.

The inventive solution is applicable to all financial markets andincludes immediate market acceptance due to lower transaction costs. Itincludes:

An electronic display of specific economic credits that, at the optionof the participant, can be used to buy low cost variable term,discounted access to future transactions and/or related marketinformation;

The capture of all data related to a transaction resting in an“Infomediary” section of the marketplace with disclosures induced by astrategic or economic benefit;

A credit display of linkages that create a seamless chain of work flows:“straight through processing”; and/or

Low cost entry and exit of new products/services, resulting in a morevibrant marketplace.

Benefits of the inventive solution to insurance/reinsurance and loansand lines of credit include:

Market intelligence: access to all necessary information about thecounterpart and the proposed, or executed, transaction;

Standardized data structures for documents, clearance, communications,risk performance, etc.;

Cross-sector arbitrage, enhanced by per producgt risk-differentiatedcash, futures, options and indices;

A listing of unique, fungible, and ubiquitous credits, available toparticipants and based on paid transaction fees. It is usable for adefined term and functions as a clear economic benefit in the form of acost reduction of either the next transaction fee or access tostrategically critical market information;

A branding mechanism that offers a distinguishing feature that defines afully complying marketplace, with counterparts that perform as expected;and/or

Transaction driving credits as credits drive transactions, which resultsin viral growth.

The result is lower costs, improved liquidity, greater revenues, growingmarket shares for participants—a vibrant marketplace that is alwaysstimulative to the economy without being inflationary. The inventionrivals FNMA and FHLMC—it covers all products (not just mortgages), ithas potentially full market reach (with potential retail, not just awholesale, market focus), and global, not just domestic, markets. Theinvention includes a proposal for an exchange for insurance andreinsurance and forming an exchange for loans and lines of credit. Theinvention addresses issues of catastrophic risk exposure facing thenation, as well as broader issues of risk transfer and distribution.

The bond insurance crisis highlights deficiencies in the availability ofinformation relating to disclosure of statistical descriptions andanalyses that would enable market participants to better assess risksand make informed investment decisions. The inventor has offered thefollowing observation and solutions to the credit and liquidity, as wellas bond insurance crisis:

The crisis is caused, in part, by the absence of real-time informationflows, focused on reliable price and term “discovery” which, in turn,contributes to market illiquidity and operating inefficiencies to thedetriment of all market participants.

The solution is to link information to transaction fees to generateTransaction Credit system credits that are visibly displayed on anelectronic screen. These Transaction Credit system credits can then beused to offset the cost of future transactions or information andanalytics.

According to the invention, what is needed are two things: (1) a newframework for disclosure and reporting of comprehensive data andanalytics pertaining to all financial instruments, including loans,lines of credit, other financial products, as well as insurance,reinsurance and securitized insurance risks; and (2) a new transactionplatform, an “Electronic Communications Network” (ECN) or other datahighway, like the Internet, in which financial products are bought andsold and where detailed data on the composition of the assets, and ofthe transactions is collected, stored, and displayed. This data isavailable, wherever possible, on a real-time basis. The activity on theECN is fueled by the Transaction Credit system credits as buyers andsellers redeem those credits to either do more business, or to accessmarket and product information.

Focus is on securitized insurance risks in the financing of catastrophicrisks, the impact the recent bond insurance crisis is likely to have onthat effort, and outlines of some options for solving the catastropheinsurance and credit market crisis through the creation of moreefficient and transparent capital markets. Particular attention will begiven to the Homeowners Defense Act of 2007 (H.R. 3355/S. 2310) thatincludes a provision to create a state-run National Catastrophe RiskConsortium that would:

-   -   “act as a centralized repository of state risk information that        can be accessed by private-market participant interested in        underwriting risk-linked securities or entering into reinsurance        contracts . . . (and) use an acquired catastrophe risk database        to perform research and analysis that encourages standardization        of the risk-linked securities market.”

See CRS Report RS22756, The Homeowners' Defense Act: An Overview, byRawle O. King.

The National Catastrophe Risk Consortium (“Consortium”) envisioned inH.R. 3355/S. 2310 would aggregate catastrophe property risk fromparticipating state-sponsored risk transfer mechanisms and transfer thatrisk to investors in the private capital markets. The Consortium ispremised on finding a low (or lowest) cost risk financing solution thatgenerates market competition by exposing risk transfer opportunities ina way that makes evident the cost savings for participants using thesystem, possibly in real (or near real) time.

In theory, the Consortium envisioned under H.R. 3355/S. 231 would be setup to facilitate transparency in risk transfer markets in the process ofclarifying market opportunities for growth for both standardizedexchange-traded derivatives and highly customized over-the-counter (OTC)contracts tailored for a specific buyer, lower the costs for theconsumer and effectively induce usage. Given the fact that portions ofthe voting public remain cynical concerning the efficacy of any specificgovernment solution, a model is necessary to which everyone can relate,and believe in, and that clearly reduces costs while increasing bothcompetition and financial innovation in the marketplace. It is criticalthat the economic benefit—the determining value proposition—be evidentto all users of the Consortium in a manner that provides sufficientincentive for universal participation. Some economists would agree thatthis can best be accomplished by letting pure market forces determinethe specific convertibility of credits into services, in terms of bothprice and time and (optionally) displaying the result.

The Consortium could use the inventive systems and methods describedherein.

Transparency in Capital and Risk Transfer Markets

Most insurance market experts would agree that solutions to thecatastrophic property risk financing problem will require financialinnovation and access to capital from outside the insurance andreinsurance industry. However, financial innovation and the risingimportance of alternative capital pools (i.e., hedge funds, privateequity funds, sovereign wealth groups) for financing insurance riskcould raise challenges in terms of the evaluation of risk, correctidentification of the ultimate bearers of risk, and proper assessment asto whether they can manage it. There is nothing wrong with complexfinancial structures so long as there is disclosure and analysis ofpricing and risk facing market participants.

Opaque Capital Markets

Economists have observed that the crisis in the credit markets calledthe “subprime mortgage crisis” arose in part because investors did notexercise sufficient due diligence. The problem is one of moral hazard:the market must provide sufficient incentives for proper performance sothat individuals acting in their own best interests cannot end up beingbad for the system as a whole. Such problems undermine the very meaningof a contract which, in turn, reduces belief that the risk will becleared by the market. It is not uncommon for bond brokers and dealersand dealer and commercial banks to use outdated or unrealistic prices tovalue their portfolios and to price securities. For example, they mightnot publish quotes, and money managers and other investors might nothave a way to determine with certainty the value of asset-backedsecurities in mutual funds, hedge funds and other investment vehicles.Risks must be clearly defined and contractually assigned in ways thatcan be tracked in order for contracts to retain their meaning.

The argument goes as follows: Investors were impeded in exercising duediligence by a lack of transparency and disclosure about the riskprofile of new structured financial instruments. Transparency in thepricing and terms of securities is essential for financial marketefficiency. Transparent financial markets should, by definition, haveprovided accurate information to allow for transactional price and termsfor securities and financial instrument of all types in real time to bereadily available to everyone, encouraging market participants toentrust their money to the markets.

In October 2007, as part of a broad initiative to study thecompetitiveness of U.S. capital markets, the Department of the Treasuryundertook a broad review of the regulatory structure associated withfinancial institutions. The purpose of the study is to find ways toimprove efficient, reduce overlap, strengthen consumer and investorprotection, and ensure that financial institutions have the ability toadapt to evolving market dynamics, including the increasingly globalnature of financial markets. See U.S. Dept. Of Treasury, “Review by theTreasury Department of the Regulatory Structure Associated withFinancial Institutions,” Federal Register, no. 72, Oct. 17, 2007, p.58939.

Officials within the U.S. Treasury have also signaled the importance ofinformation and transparency in capital markets. In a speech before theEuromoney Bond Investors Congress in London on Feb. 27, 2008, PhillipSwagel, Assistant Treasury Secretary for Economic Policy, commented onthe U.S. economy. He observed that providing better information willlikely be one of the main recommendations that will come from theanalysis that the Treasury is undertaking into the underlying reasonsfor the housing and credit market crisis of 2007-2008. He noted that alack of transparency and easy access to information is at the heart ofthe disruption that has affected both market participants and morebroadly the global economy. For this reason, the Treasury is primarilyfocusing on the lack of availability and use of information about thequality of the mortgages underlying MBS, CDOs and the range of relatedinstruments, as well as ways to improve market discipline in the areasof disclosure and due diligence. Limited access to and limited demandfor information throughout the securitization chain facilitated laxunderwriting standards. Market participants, Swagel noted, had theincentive to demand such information but, because of expectations aboutcontinued home price increases, there was a reduced level of duediligence.

Transparency and Data Availability in Capital Markets

A standard framework for the collection and disclosure of asset-levelinformation that will help capital market participants price risk andthereby aid the market to achieve on-going price adjustment. Access toinformation can be improved through the activities of a nationalcatastrophe financing facility that collects and disseminates criticalcatastrophe property risk information to the capital markets and acts asa financial intermediary for managing and insuring catastropherisks—i.e., a new, national framework for managing and insuring risks oflarge-scale catastrophes, initially environmental but in time extendingto all risk transfer. Existing insurance industry organizations andinstitutions, such as the Insurance Services Office (ISO), enableinsurers to achieve and share economies of scale in the collection andanalysis of data, but these organizations have not completely dealt withthe unique underwriting and pricing requirements for catastropheinsurance.

Electronic Transaction Platform for trading Catastrophic Property Risks

There are a number of possible modes of implementing an efficientelectronic transaction platform for trading catastrophic property risks,but an exchange platform seems to be most feasible because it is afamiliar construct; and, such a centralized utility facilitatestransactions and associated data collection. One could, for example, runa transaction platform as a central marketplace for all markets, asingle platform through which all others could transact. What is key isa linking mechanism such as the Transaction Credit system credit. Thismethodology keeps the cost of participation low; and, an exchangeplatform is a flexible structure which, when coupled with a database,may even evolve into a search engine for the financial industry—aninteresting path for long term industry development, a logical extensionof the nation's proven skills in market creation and informationtechnology.

The Homeowners Defense Act of 2007

Lessons can be learned from the current bond insurance crisis to helppolicymakers ensure that the same mistakes are not made with respect tocatastrophic property risk transfer when implementing Title 1 of H.R.3355/S. 2310—the Homeowners' Defense Act of 2007. This legislation wouldcreate a state-run facility designed to allow states to poolcatastrophic risks, divide that pool into portions sold to a wide rangeof investors through direct placements or in over-the-counter markets.

On one level, what is proposed is the abandonment of the individualsilos of 18th-20th century business models—in favor of creating a 21stcentury union of all forms and methodologies for credit risk transferthat result in financial products. All risk transfer, whether insurance-or capital markets-related, can be allowed to compete on an open playingfield. Understanding that such a proposal allows for the inevitablemarket excesses, and occasional disruptions, that come from truly freemarkets, allows us to see the reason for regulation, which in turnrequires data and analytics to keep it informed. The invention proposesnew methodologies that link transactions directly to information.

An important consideration is cost. Running a competitive auction to thebest bidder for any type of risk transfer is estimated to costapproximately 50 basis points (½ of one percent) in this system, asopposed to a maximum NASD-mandate cost of 500 basis points (5%) or moretypical insurance/reinsurance spreads of 1000-1500 basis points(10-15%). Clearly the functions are not precisely comparable; but,overtime, the resulting but long-avoided market transparencies can beexpected to result in massive saving to the consumer. Presented againstthe entire market of $200 trillion in annual catastrophic risk transfer,the savings between present 10% annual gross margins and 0.5% auctions,in which end users can participate along with intermediaries,approximate $19 trillion annually. The nation could lead the world increating such a solution—and our notions of wedding capitalism, marketcreation and capitalism could be exported, as it is expanded to includemany other types of risk. Most important, as the analysis and the marketitself becomes more granular over time, new elements of risk prediction,along with risk mitigation, possibly avoidance, could be created. Newproducts will be priced to a consumer who once again can rely on thefinancial markets to clear risk efficiently.

The solution of the present invention is applicable to any financialinstrument and market participant for which there is a primary andsecondary market, and intermediation. These include loans, lines ofcredit, as well as insurance and reinsurance. Revenues flow fromincremental transaction fees or the purchase of information. It issimple in the same way that a paper clip, or a rubber band, or a ballbearing are each very simple, adaptable, and useful in their design. Thesolution is a universal Transaction Credit system credit that conveys aneconomic benefit, displayed electronically, that fosters the developmentof an “Infomediary”.

One should look for low-cost ways of improving transparency in allcredit and insurance markets. We should try to grow the market out ofand past its current inefficiency. To accomplish the cost minimizingefforts in setting up the electronic facility, the Consortium couldcharge a “transaction and/or data access fee” generated from either theprimary or secondary market that would contain a comparable credit usedto off-set the cost of either access to associated transparency-creatingmarket information, or a second distribution-related transaction feefrom another market sector. This credit will be used to support thisfacility thus offering a more efficient and volume-enhancing electronicdistribution network for a full range of financial products, includingfinancial products that affect all forms of risk transfer. The resultgives clear, economic and strategic advantage to the system user andinduces usage, generating business volumes.

Sitting at the nexus of product creation, transaction and pricing is ameasure of fees, associated credits and remaining terms of use, whichbuys economic and strategic advantage for users through provision ofcritical market information. Such information is—without limit—adescription of: individual risk(s) covered; specific financial exposureper product; amount of government coverage of potential loss;diversification or incidence or percentage risk per investment pool;original and subsequent market pricing; and market volumes—an effective“ticker” available in real time. This measure can be superimposed on anexisting, de facto marketplace. It can be organized using today'stechnology and financial skills, open to all, enhancing—but notdisturbing—the marketplace.

The inventive solution can be applied to resolve the problem facing thebond insurers. The problem facing bond insurers stems from the fact thatthey are part of a chain of investors that purchased assets orinstruments without knowing exactly what they were investing in. Thebanks made loans to certain borrowers, effectively adjusting theirlending criteria and standards to suit a broader class of borrowers,thus accommodating more of the financially weaker borrowers. The key wasin banks setting interest rates at ever lower levels, with theexpectation that borrowers would be able to support higher rates lateron in the life of the loan. Those loans were pooled, wrapped, labeledand sold as “asset backed securities.”

But the magnitude of the weakness of the individual borrowers was notdisclosed on a per contract basis. Indeed, it was not readilydiscoverable because the details of the loans were not available. Thefinancial guarantee companies (bond insurers) were then providingevaluations and ratings on the credit quality of the banks' loanportfolios, and of the asset backed securities, without really knowingthe precise composition of the loans. In other words, the root of theproblem lies in the absence of, or lack of access to, full and accurateinformation (i.e., “transparency”).

The solution of the present invention tracks the composition of theassets or financial instruments and details of transactions as theyoccur. If it was paper we would put paper clips or “post-it” notes onall or certain pages of the documents where critical information is tobe found. Instead, imagine a Transaction Credit system credit was“stuck” onto each electronic file containing the details of atransaction. The Transaction Credit system credit has at least fivevaluable features:

It provides economic value in that it can be used to offset futuretransaction fees, and/or to offset the cost of acquiring transaction andmarket data.

It provides incentives to conduct repeat business as participants aremore likely to use a credit with real value. The credits also haveterms—the precise definition of which can be used to induce usage.

It is tradeable.

It is structured to reduce cost of regulatory compliance. Financialservice regulators would find the concept of the credits intriguingbecause reviewing a flow of credits reveals market sector activity bybusiness volumes, and product demand on an increasingly granular basis.The database provides insight into progressively more detailedinformation that otherwise must be collected through a much more laborintensive, time consuming and costly process of on-site examination andreview of the regulated businesses.

It is a tightly-focused new tool for public policy, a clearlynon-inflationary economic stimulus, with immediate application. ATransaction Credit system credit “grafts” to any transaction platform ortechnology and immediately targets “search” functions. It is searchable.A search engine can search credits. A search engine can search forattributes or terms of financial products.

The inventive system would receive immediate market acceptance, becauseit accomplishes demonstrable cost reduction, from a broad range offinancial market participants who understand the products, assets,instruments and risks currently being traded in the capital markets.Participants would see visible (electronic) markets in real-time tooffer the most competitive pricing and terms. The structure wouldfacilitate low cost entrance and exit of products and services in atargeted response to market need. The structure will deliver greaterrevenues, allow participants to grow and direct market share accordingto the credits they grant (or accept the reality that non-participationalways loses it), create more product to respond to the needs of themarket, and ensure ongoing expanded opportunities for profitabilitythrough the transaction of a credit index that allows participants toactually hedge the advent of transparency.

Credits travel across all transaction platforms and information,process/work flow enabler in the full food chain for both financialproducts and commerce in general, whenever and wherever atransparency-creating event occurs. This is meant to include evencontract performance on a granular level experienced by the investor ora service provider acting in his interest.

Track-able linkages are formed between and across different silos in thechain. The credits themselves in any form or format may form thelinkages through which the information is exchange and/or embedded.

The invention includes a search engine based on totaling up all creditsunique to an entity, as just one aspect of a variety of different searchalgorithms based on the collecting of Transaction Credit system credits.It specifically does not exclude other groupings that allow forTransaction Credit system credit fungibility.

Analysis of metrics similar to those disclosed in U.S. patentapplication Ser. No. 10/859,017 filed Jun. 1, 2004 and entitled“Monetizing Declined Applications for Credit” by the present inventorand incorporated herein by reference, across an inclusive network ofparticipants to reveal anomalies in product performance (such as when acontaminated product entered a financial system) can be used to predict,mitigate and possibly avoid risk.

A financial contract—the jurisprudential basis of all loans and lines ofcredit, insurance and reinsurance—is not a static instrument. Indeed,all sorts of risks are effectively contained and described in itsunderwriting standards, its associated statistics and transactiondetails, all effectively contained in the sum of the contract, whatmight even be referenced as expressed in its terms and conditions.

Increasingly in times of credit tightening, it is useful to add backinformation to a contract in real time, information that, by itself,might impact either the credit worthiness of a contractual counterpartand/or the value of an asset.

The present invention links all: transaction platforms (exchanges,clearing banks, loan seekers and lenders, insurance seekers andinsurers, inter-dealer or wholesale brokers and the last stage investor)as well as their process and work flow enablers, credit raters,information providers—any and all in a linked series of transactionplatforms complete with a information resource in a single dataprocessing system.

The linking element is the system credit which contains a direct orindirect reduction in cost of subsequent related transaction fees or inaccess to strategically critical market information. The system creditsare a limited term grant of financial advantage that are effectivelytraded for transparency creating information.

Transparency without clarity has little use. So analytics embedded inthe system credit to add value to the information—particularly if itaffects either the costs of risk transfers or the valuation of an asset.Algorithms related to the system credits are used to search for the bestdeal, or to create indices that measured the use of credits (as onemeasure and hedging tool for the onset of transparency) and/or thedevelopment of a credit wallet, a new type of credit card that supportsfinancial market transactions that allows for the aggregation andexchange of different kinds of system credits.

The present invention stands at the intersection of transactions andtheir information, updating each contract with actual financialperformance data. The updated data re-creates value in old financialcontracts by attaching new, relevant, value-establishing data. As aresult, market function is restored or improved and made more liquid byre-tooling relationships between existing market participants andtransaction platforms to track critical information. Those whoparticipate grow greater market share, incremental revenues and clearervalue. The financial market participants pay the person who voluntarilyprovides the fresh data with the Transaction Credit system credit.

The present invention is particularly directed at a systems and methodof putting back information into a contract after it is formed relatingto its covered risks, as expressed in its underwriting standards andtransaction details, and tracking them all going forward in time. Theembedded data structures relate to underwriting standards andtransaction details and updated risk factors. The Transaction Creditsystem credit can be used to fund actual purchases, charitablefunctions, gift-giving, and public policy resolutions.

The present invention is directed at a solution such as the real lifeproblems which led to the massive interventions by the FederalGovernment to support AIG in 2008 and 2009. AIG's financial problemsarose in the operations of its Financial Products Group (AIGFP). AIGFPproducts were based on leveraging the value of the AIG AAA creditrating. AAA ratings can change over time, and as AIG's rating fell, moreand more capital was required to keep AIGFP's business modeloperational. In the process, AIGFP took on ever greater risks/excessiverisks—all still linked to the original AAA bond rating of the parent.

AIG had a system, “the position analysis and storage system” (PASS),designed to assess the necessary “market, accounting and transactiondetails”. This system failed in large part because of the extremeefforts within the financial services industry to keep markets opaque byhoarding, not sharing, critical information. This absence of consistentmeasures of cross platform performance data made it impossiblecounterparties to properly assess risk. Ultimately, there was a grossmiscalculation of risk. AIGFP reportedly made the assumption that aperfect storm of financial reversals could never occur simultaneously,and therefore was a de minimus risk. AIGFP executives said the swapscontracts were like catastrophe insurance for events that would neverhappen. The absence of the necessary information to properly assessrisks led to a near-complete failure on the part of rating agencies andregulators to properly perform their core responsibilities to maintainreasonable order and valuation oversight in financial markets and toconsistently assess the risk of each corporate credit and financialstructure in order to protect the public.

The present invention presents a data processing platform that is trulytransparent, inclusive of all origination, distribution and investmententities. It conquers informational asymmetries and its accompanyingadverse selection. This structure allows for comparative analysis acrossmarkets, transaction platforms, and products, in real-time and inclusiveof actual up-to-date investment performance.

Comparative analysis is also necessary when considering accountingmeasures which artificially seek to “freeze frame” a company'sperformance into a single moment in time, often looking solely atmark-to-market, mark-to-method, mark-to-model price methodologies. Eachis likely to be right or wrong for an instant in time but it isimportant to remember no one methodology necessarily conveys an accuratepicture.

The present solution addresses these problems through a system which:provides all necessary information on an on-going real-time basis;diversifies risk transfers away from a specific and positive correlationwith credit; establish a neutral marketplace for all risk transfer thatincorporates insurance and reinsurance, and loans and lines of credit;allow a free flow of information: let all market participants haveaccess to real time data feed on market activity that enables real pricediscovery; establishes genuine regulatory oversight, equipped with toolsappropriate to the 21st century, which puts the interest of the peopleahead of the interest of the participating institutions alone; andestablishes genuinely autonomous credit rating agencies whose analysisand ratings are not “for sale”.

The present invention may be implemented in data processing systems thatmanage all data related to financial transactions, prospectively linkingall transaction platforms and exchanges and clearing houses, in loansand lines of credits (including mortgages), insurance, reinsurance,derivative products, and other financial instruments (collectively,“Financial Products”). As described above, such data processing systemsinduce widespread market participation through the use of “TransactionCredit” system credits; capture most, if not every, data point(s)relating to a Financial Product, from its origination to its maturity;store the data in a central repository; provide the data and analyticsin real-time (or near-real-time) and in as much detail as desired, in amanner accessible to all market participants and other interestedparties, including regulators; and, track all key aspects of theFinancial Products in real time (or near real time), includingperformance on a per transaction basis, from first inquiry throughorigination to final maturity.

The data captured in the data processing system includes price, term,and risk; counterparty risk and other risk exposures. The systemanalytics software provides comparison of critical risk features, keyattributes and operating measures of the financial products fromorigination to maturity with data from similar products both historicaland current and can help in signaling market anomalies and emergingdangers.

For the convenience of the reader, the above description has focused ona representative sample of all possible embodiments, a sample thatteaches the principles of the invention and conveys the best modecontemplated for carrying it out. The description has not attempted toexhaustively enumerate all possible variations. Certainly at the presenttime, regulatory oversight and enablement, as well as risk and assetvaluation, remain a specific concern on a local, national, and globallevel. Other un-described variations or modifications are possible. Forexample, where multiple alternative embodiments are described, in manycases it is possible to combine elements of different embodiments, or tocombine elements of the embodiments described here with othermodifications or variations that are not expressly described. Many ofthose un-described variations, modifications and variations are withinthe literal scope of the following claims, and others are equivalent.

For a market to function optimally, there must be confidence in themeaning and value of its contractual obligations. Confidence in thecontracts increases liquidity in the markets for insurance, loans andlines of credit and other financial products. Establishment anddisclosure of standards, statistics, and definitions applicable to thecontracts is fundamental to creating that confidence. This is achievedthrough disclosure of the terms and conditions of the individualcontracts as well as the clear establishment of necessary underwritingcriteria regarding all of the descriptive aspects and valuativemethodologies of the risk or asset. The use of the invention enables theestablishment of standards, definitions, and statistics necessary tooptimal functioning of the market, and to creating reliable contracts.The inventive solution does not impose the terms and conditions of thecontracts, but rather encourages them to be established naturally in thefree market—exposed and fully transparent.

All markets “clear” risk (meaning that they price risks and transformthem into acceptable and manageable structures) at what is called theclearing house price. The clearing house price is a function of manythings, most importantly, comparable transactions. As a result, the morethe risk can be defined and standardized, the more easily the marketclears, defines and standardizes it. The result is enhanced pricediscovery.

If one were creating banking, insurance and capital markets businessmodels anew, one would not be using models that are conceptuallygrounded in the 18th to 20th centuries. One would instead focus on 21stcentury technology and this nation's proven strengths in marketcreation. This country has long been esteemed for free markets,resilience, and innovation. The current breakdown in finance providesthe opportunity to update structures and practices and to utilizecurrent technology in devising a solution that supports growing dynamicfinancial and commercial markets.

The current business model for many companies and their regulatorsrelies on periodic (monthly, quarterly or yearly) financial statementsmade that provide a snapshot of the company's financial position as of ahistorical date. Often, a company may hold securities among its assetsthat fluctuate in value, although the rules that surround how thedifferent methodologies by which they may be accounted can be fixed.Those securities may be valued according to differing accountingconventions. For example, the Financial Accounting Standards Board(FASB) has issued standards for how firms should value such securities.Under these standards, the securities are categorized into one of threelevels:

Level 1—markets determine pricing

Level 2—“observable inputs” determine pricing

Level 3—“unobservable inputs” determine pricing

The securities in each level are valued at the beginning and end ofevery reporting period. The company describes the method of valuing eachlevel of assets in its reporting. For Level 3 securities, the companyshould report information about purchases, sales, issuances, andsettlements on either a gross or net basis.

However, during times of economic crisis, these approaches are notsufficient to provide an accurate valuation of securities held by acompany. This is particularly true for derivative, pooled securitieswhich are bundles of assets collected from different originators andrepackaged and sold to investor companies. If the company's managementdoes not completely understand the value of the assets they own, thefinancial statements they issue will be misleading to regulators andinvestors.

The present invention provides a way to gather information about anindividual risk or asset within a security and will benefit regulatorsand investors by providing greater transparency in security valuation.

The present invention inherently changes this disconnect in valueperception by updating all of the definitions of financial products inreal time, inherently supporting proper market clarification,transparency, full disclosure of price and terms—with continuousre-pricings.

In accordance with one aspect of the invention, financial productsmarkets where there are a first sector for origination of the financialproducts (such as sale of insurance, or making of loans to borrowers)and a second sector for resale (or chains of resales) of a fractionalinterest or entire interest of the insurer or lender in the financialproduct, data is captured in the course of each transaction involvingthe financial product. The data is recorded in a data storage system sothat each financial product, and its underwriting standards, and relatedsubsequent activity and transactions involving that financial productare stored. The recorded data includes the original terms of thefinancial product and its value, and the changed terms of the financialproduct and its value arising from external events or from thesubsequent transactions, and original and updated valuations offinancial products contracts bundled in a pooled security. One criticalmeasure is the per contract performance level as measured by either itscurrent or anticipated cash flows. The data report is provided in apredefined standard format and can be continuously updated with new,relevant information. The data report is available to parties thatconduct transactions in the two sectors, and can be made available togovernment regulators over the full life of the financial contract oraggregation of contracts.

During application processes for financial products, includingspecifically, consumer-directed financial products, including but notlimited to life insurance, annuities, medical insurance, homeowner'sinsurance, renter's insurance, automobile insurance, secured loans,mortgages, home equity loans, automobile loans, personal loans or linesof credit and unsecured loans, and credit card revolving loans, as wellas business-directed financial products of the same type includingmortgages for investment properties and loans and lines of creditprovided for use as operating capital, offered by a plurality ofofferors, information is obtained in the application processes.

Those applications are then examined in accordance with underwritingstandards of the financial products company, and in a due course, afinancial product is issued to the client/purchaser, and a future incomestream is provided to the financial products company/issuer.

That future income stream can then be sold by the financial productscompany/issuer to a subsequent investor. The subsequent investor maypool together numerous such future income streams and sell the pooledfuture income streams as a pooled security. The end purchaser who buyssome portion of, or the entirety of, the pooled security seeks to obtaina stable future income stream for their investment, but as recentexperience has shown, it is not certain that the future income streamwill in fact be stable. And if it turns out that the income stream isnot stable, then the actual value of the security is not the value bywhich it was originally entered into the financial records of thecompany.

Furthermore, there may be deceptive or fraudulent practices associatedwith the financial products contracts. For example, product originators,trader/intermediaries and investors may take steps to obscure or enhancevalue. For example, using the triple AAA value of an asset or tranchewithout revealing that the risk element is so high as to reduce value;or holding securities or instruments that require notification of athird party in order to vary the terms and conditions/pricing of anasset so that timely notification is not possible; or the insertion of“the appearance of risk” to risk situations in order to enhance spread.(For an actual example: purchasing a large pool of assets having apresumed average life of 3.5 years at 89, then selling a large portionat 104 without applying the 15 point profit to the remainder of the poolto reduce the effective cost and associated risk).

In order to obtain an accurate valuation is necessary to go into eachpooling of asset backed and derivative securities, breaking down eachpackage into its component contracts. Each component contract in apooled security is identified and that data is stored in a data file.The underwriting standards that were applied at the time of issuance ofthe contracts are identified and stored in data file(s). (Theunderwriting standards are the key risk descriptors unique to eachcontract.) Each and every element, price and term and condition,representation and warranty of each contract is identified and stored indata file(s). Data associated with each component contract is identifiedand stored in data file(s). The stored data extends through theapplicable time periods of the contract(s), ranging from first inquirythrough to current real time cash flow performance, with all of theinformation constantly updated and re-valued in near or real time.

The present invention in one embodiment is a data processing systemhaving one or more program executing computers, and one or more datastorage devices, which processes data captured in the applicationprocesses and in subsequent transactions. In particular, the inventionincorporates one or more computer program products executing on the dataprocessing system 101, which incorporate the following steps:

-   -   receiving or extracting or generating data elements regarding        financial products contracts,    -   determining valuations of the financial products contracts by        calculation or comparison methods;    -   creating a data report in a standard data format containing the        financial products contracts data elements,    -   storing the data report in the one or more data storage devices,    -   receiving new data items regarding one or more of the financial        products contracts,    -   adding to or modifying the data report to create an updated data        report incorporating the new data items,    -   determining updated valuations of the financial products        contracts by calculation or comparison methods, and    -   storing the updated data report with the updated valuations of        the financial products contracts in the one or more data storage        devices.

The financial products contracts will typically comprise insurancecontracts, reinsurance contracts, loans, or lines of credit, orsubsequent and derivative transactions relating thereto, includingreinsurance, and derivative securities such as collateralized debtobligations.

The data elements regarding financial products contracts can include oneor more of insurance underwriting standards, insurance financial terms,insurance applicant data, loan application standards, loan financialterms, loan applicant data, or comparable transaction details, as wellas valuative per type performance measures provided by third partiessuch as medical findings or appraisals.

Thus, for example, in the case of a mortgage, the data elements caninclude one or more of loan underwriting standards of the loanoriginator; loan terms such as the size or amount of mortgage, the typeof loan (primary mortgage or home equity), the loan to value (LTV)and/or combined loan to value (CLTV) ratios, the mortgage rate (Fixed orAdjustable rate (including reset date)), appraisal value, appraisername, the primary/secondary residence; the Origination Date, the holderof original note/location of assignment documents, prepayment history;and title search; and loan applicant data such as age, income,employment history/type, credit history, debt to income (DTI), anddocumentation provided.

The data report created from these data elements is in a standard formatso that the data contained in the report is consistently searchable,combinable, and updatable. Thus, the data in the data report can be usedto instantiate an OLAP cube for analysis of the data contained in thereports. The data elements can be stored in a relational database orother database. Alternatively, in a preferred embodiment, the dataelements do not require a relational database and are stored withassociated data tags to identify each data element. In the mostpreferred embodiment, the data tags are XML tags. In one version of thepreferred embodiment, the standard data format is an XBRL (eXtensibleBusiness Reporting Language) data format.

New data items regarding one or more of the financial products contractsor contract elements might include one or more of payment history,appraised value, loan to value ratio, comparable transaction details,comparable property defaults or value changes or risks, relatedfinancial instrument changes, or derivative contract data. The new dataitems regarding one or more of the financial products contracts canrelate to one or more of the following types of risks: asset valuation,bankruptcy, credit, currency, changes in sentiment, counterparty,country, definitional (absence of standardization), diversification,economic (Inflation, recession and interest rates—yield curve),environmental, liquidity, litigation, market crash, moral hazard,performance or operating risk, spread, terrorism or war, transaction,transfer, transparency, volatility, or volumes.

In one embodiment, the financial products contracts comprise creditderivative swap contracts; and the new data items may disclose changesin related financial products, or defaults in related financialproducts.

The one or more computer programs perform calculations with respect tothe new data items to determine risk conditions; and add to or modifythe data report to create a risk updated data report incorporatingdetermined risk conditions, which are preferably identified in theapparatus with risk condition data tags. Preferably, the risk conditionsare determined relative to predetermined standards but, with newlyunderstood risks constantly being identified, the use of overlays ofrelational risk-identifying databases can be useful, indeed necessary.

This data can then be used to calculate value, either by using financialanalysis tools, or by making a comparison to one or more comparableinstruments having a known value or related risk. The process is thesame for each type of financial risk. Real valuations may be establishedby linking different accounting/jurisprudential/regulatory standards,contract types, valuations by “comparable asset types” and anticipatedcash flows, overlays of different databases detailing any form ofrisk-related subjects. The latter would include everything fromcomparisons of operating metrics that measure different type ofoperating performance risks on a per platform basis (as measured by:conversion/pull-through rates), to value or risk-related informationlike appraisals, medical histories, mortality rates, diet and exercise,economic or geographic or geologic information, etc.

Although the conceptual framework applied is consistent across allfinancial products contracts, the valuation approach will vary by assettype or product grouping. Thus the valuation of instruments derived fromcash markets will apply different standards than the valuation ofinstruments derived from mortgage markets or insurance markets. In thesame way, cash instruments, futures instruments, and option instrumentswill all have separate valuation approaches.

The data reports are continuously updated to reflect changes arisingfrom external events or from the subsequent transactions. The datareports can be made available to parties in either a primary orsecondary market for the financial products. In one preferredembodiment, one or more computer programs executing on the dataprocessing system determine if a person has provided data elementsregarding financial products contracts to the data processing system andcalculate a system credit related to a quantity of data elementsprovided by the person. The system credit may be applied by the personto a cost of obtaining data reports from the data processing system.

The data processing systems 101 to be most effective should collect datafrom a range of sources, including originators, purchasers, ratingagencies, regulators, data providers on trends and relationships betweenfactors and affected elements, for example, in connection with weather,calendar, medical, location, and other conditions. It is desirabletherefore to incorporate one or more mechanisms that prime an efficientmarket and that reinforce the efficiency of the market. Threeillustrative mechanisms are:

First, where the data processing system 101 constitutes anoffering/closing system or exchange for the sale of financial products,the pro rata fees incurred with respect to transactions associated witha patron for patronizing the system might decrease as the total feesincurred by transactions associated with that patron increase. Forexample, although the owner/operator of data processing system 101 mightreceive a fee from a lender/insurer when the lender/insurer closes aloan or writes an insurance policy through the system, a portion of thefee might be remitted back to the lender/insurer for having closed alarge volume of business through the system in a given interval.Advantageously, the fees from all types of loans, lines of credit and/orinsurance policies are aggregated for determining the amount of theremittance.

Therefore, this mechanism encourages lenders/insurers to patronize thesystem with larger, rather than smaller, volumes, which is accomplishedby endeavoring to offer the most varieties of loans, lines of credit, orinsurance at the lowest interest rates or insurance premiums and at thebest possible terms.

Second, some or all of the parties who patronize the system mightreceive statistics compiled by the system on the condition of the marketin loans, lines of credit, and/or insurance products. Although thesestatistics cost the owner/operator of data processing system 101 littleto compile, their value is so great that lenders, insurers, reinsurers,reinsureds and buyers and/or sellers of loans who do not have access tothe statistics will have difficulty, in the long run, in competing withthose who do. An analogy makes the situation clear; a trader of stockswithout access to the stock ticker and current bid and offer quotationscan be arbitraged by a trader who does.

Furthermore, although some or all of the statistics might be sold forcash, the statistics are advantageously given for free, or sold at asubsidized price, to those patrons of the system who actually disclosenecessary data in the system. Advantageously, the price for thestatistics decreases as the measure of fees incurred by transactionsassociated with a patron increases. For the purposes of thisspecification, the provision of statistics for free, or at a subsidizedprice, to those patrons of the system who close loans, buy and/or sellloans, write insurance policies, and/or reinsure risks or both throughthe system is called “netbacking.”

Netbacking also encourages lenders/insurers, as well as individualborrowers and insureds, to patronize the system with larger, rather thansmaller, volumes, which is accomplished by endeavoring to offer the mostvarieties of loans, lines of credit, or insurance at the lowest interestrates or insurance premiums and at the best possible terms.

Third, a portion of the fees incurred with respect to transactionsassociated with a lender for lending through data processing system 101,or with an insurer for writing policies to insurance applicants, mightbe credited against the fees incurred with respect to transactionsassociated with the lender for buying and/or selling loans through thesystem, or with respect to reinsurance transactions (as either buyer,seller, reinsurer and/or reinsured). For example, many lenders desire tosell a loan immediately after they have made it, and many insurers whowrite policies immediately seek reinsurance (i.e., to transfer all, or aportion of, the risk associated with the policy to a reinsurer). It is,therefore, possible that a lender/insurer will lend to an applicant orwrite a policy through the system, and incur a fee for doing so, andthen sell that loan or reinsure that policy through the system and incura second fee. Data processing system 101 credits, according to somecredit schedule, a portion of the fees associated with a patron forlending or writing insurance through the system against the feesincurred for buying or selling a loan or for reinsuring through thesystem.

An alternative embodiment, in the loan context, works in reverse andcredits, according to some schedule, a portion of the fees incurred withrespect to transactions associated with a patron who buys and/or sellsloans through the system against the fees incurred for lending throughthe system. In the insurance context, this alternative embodiment worksin reverse and credits, according to some schedule, a portion of thefees earned with respect to a patron in reinsuring through the systemagainst the fees incurred by the patron in a transaction for writinginsurance through the system. In yet another embodiment, in the loancontext, the fees incurred in buying and/or selling loans through thesystem are credited against the fees for lending through the system, andthe fees incurred for lending through the system are credited againstthe fees for buying and/or selling loans through the system. In yetanother embodiment, in the insurance context, the fees incurred inreinsuring through the system are credited against the fees for writinginsurance through the system, and the fees incurred writing insurancethrough the system are credited against the fees for reinsuring throughthe system.

These structures encourage lenders/insurers to patronize the system withlarger, rather than smaller, volumes, and to offer the most varieties ofloans, lines of credit, or insurance at the lowest interest rates orinsurance premiums and at the best possible terms, and by patronizingthe secondary market in loans or reinsurance with the best possible bidsand offers.

The end result is that in order to compete in the consumer financeand/or insurance markets, lenders, buyers and/or sellers of loans,insurers, reinsurers and/or reinsureds must have access to thestatistics, which encourages them to patronize the system withcompetitive offerings to get access to the statistics, which increasesthe competitiveness of the market, increases its volume, and promotesits efficiency. Therefore, some embodiments prime the market forefficiency and incorporate a positive feedback mechanism that maintainsthat efficiency. It is understood, however, that the priming ofembodiments might be assisted by advertising and other marketingtechniques.

Data processing system 101 may receive data from each lender, applicant,application processor, loan processor, buyer and/or seller of loans,insurer, reinsurer, reinsured, insurance agent and/or underwriter, andin some embodiments, endeavors to match lenders/insurers withappropriate applicants and reinsurers with appropriate reinsureds, tofacilitate the provision of loans and lines of credit. Each lender,applicant, application processor, loan processor, buyer and/or seller ofloans, insurer, reinsurer, reinsured, insurance agent and/or underwriteris advantageously capable of providing data to and receiving data fromdata processing system 101 via a data network (e.g., the Internet, etc.)or via a telephone network (e.g., the Public Switched Telephone Network,etc.) or both.

Referring again to FIG. 2, it depicts an illustrative embodiment of dataprocessing system 101, which illustrates the updating of data reportswith new data items and the earning of a system credit from submissionof new data items.

The invention includes the following advantages:

-   -   data processing system 101 can provide buyers and sellers of        loans with statistics regarding the market in pools of loans,        which can be used by the buyers and/or sellers of loans to: (1)        assess the value of an individual loan, (2) assess the value of        a loan or pool of loans, (3) determine which types of loans they        desire to buy and sell, and (4); arbitrage those buyers and/or        sellers, reinsurers, and/or reinsureds who do not have access to        the statistics.    -   data processing system 101 may provide reinsurers, and/or        reinsureds with statistics regarding the market in insurance and        reinsurance that are of value in: (1) assessing the cost/value        of individual policies that are to be reinsured; (2) determining        which policies they desire to reinsure and at what price,        and (3) arbitraging those reinsurers and/or reinsureds who do        not have access to the statistics.    -   data processing system 101 may provide buyers and/or sellers        with an efficient market for the purchase and sale of the        servicing of pools of loans (e.g., providing payment collection        and other administrative overhead, etc.).    -   data processing system broadly provides an efficiently priced        market by allowing for transaction fees to wholly or partially        offset one another or have either offset access to strategically        critical market information—even prospectively across asset        classes and product lines.

These inducements are possible because the costs of doing business forlenders, insurers, reinsurers, reinsureds and buyers and/or sellers ofloans and the interest rates or insurance premiums and fees toapplicants are unnecessarily high because efficient markets for loans,lines of credit, insurance and reinsurance do not exist. Furthermore, ifa highly efficient market for loans, lines of credit, insurance andreinsurance did exist, the cost of doing business for lenders, insurers,reinsurers, reinsureds and buyers and/or sellers of loans coulddecrease, the interest rates or insurance premiums and fees toapplicants could decrease, and the provider of the market could alsomake a profit. Furthermore, the existence of an efficient market couldeven provide lenders/insurers with a larger profit than they make now ifoperating costs drop more quickly than interest rates or insurancepremiums drop. In other words, the intermediation of an efficient marketbetween applicants, lenders, insurers, reinsurers, reinsureds and buyersand/or sellers of loans can actually make the cost of loans, lines ofcredit, or insurance to applicants go down, the cost of doing businessto lenders, insurers, reinsurers, reinsureds and buyers and/or sellersof loans go down and the profits to lenders, insurers, reinsurers,reinsureds and buyers and/or sellers of loans go up. Therefore, dataprocessing system 101 endeavors to provide a market for the provision ofloans, lines of credit, insurance and reinsurance that is highlyefficient.

The efficiency of the market for loans, lines of credit and/or insurance(the primary or retail market) may be affected by the efficiency of themarket in pools of loans and/or reinsurance (the secondary or wholesalemarket) and vice versa. Therefore, data processing system 101 mayimprove the efficiency of both the primary market and the secondarymarket so that, to the extent the efficiency in one enhances theefficiency in the other, a synergy of efficiency between the two marketsis affected. For example, to effect this synergy, fees incurred by apatron to the owner/operator of data processing system 101 for lendingthrough the primary market might be credited against the fees incurredby the patron to the owner/operator of data processing system 101 forbuying and/or selling through the secondary market (and vice versa).

In one embodiment, the solution involves a universal Transaction Creditsystem credit that conveys an economic benefit, displayedelectronically, that fosters the development of an “Infomediary” thatcarries the necessary data and analytics to clarify the marketplace.This credit may be used to support an effective utility, thus offering amore efficient and volume-enhancing electronic distribution network fora full range of financial products, including financial products thatimpact all forms of risk transfer. The result gives clear, economic andstrategic advantage to the system user and induces usage generatingbusiness volumes.

This technology can be superimposed on an existing, de factomarketplace, singly or in a serial fashion to create a virtual communityof interests, a truly collaborative effort that accesses all necessarycapital pools. It can be easily organized using today's technology andfinancial skills at low cost relative to any other solution, open toall, enhancing and linking—but not disturbing—all sectors andtransaction platforms in the marketplace. It is an approach that isentirely optional and voluntary, in which all participants tradetransparency-related information for lower costs.

Attributes of the system include:

-   -   (1) It is neutral—it does not favor any one special interest        group or constituency.    -   (2) It is internet-focused (thereby creating widest market        reach).    -   (3) It focuses on underwriting standards and associated        transaction-related statistics, inclusive of terms and        conditions, representations and warranties.    -   (4) It provides its own economic and strategic benefits.    -   (5) It is transparency-inducing, without being        transparency-requiring (each counterpart does precisely what        they choose, in terms of disclosing their unique circumstance        and paying an appropriate price).    -   (6) It delivers increasingly granular real-time data and        analytics for all financial products with primary and secondary        markets.    -   (7) It is the lowest-cost method relative to all other        solutions.    -   (8) It is entirely volitional.    -   (9) It carries the benefit of both organic and viral growth        (caused by the fact that trade participants always lower costs,        gain revenues and market share; whereas non-participants lose).    -   (10) The public demonstrably wins through better pricing of        goods and services.    -   (11) It is easily adaptable to all current transaction platforms        and technology.    -   (12) It can be initiated almost overnight, simply by executive        mandate.    -   (13) It provides a stimulus (made clearest through an electronic        display of transaction credits) without any inflationary risk.    -   (14) It facilitates easy entry and exit of new product/services.    -   (15) It does not require additional expansion of government        functions or bureaucracy.    -   (16) It is a private market solution; an American innovation.    -   (17) It tracks all market transactions, and forms a        low-to-no-cost audit trail.    -   (18) It could look like a Government Sponsored Enterprise that        sponsors transparency, not needing to make financial guarantees,        simply validating that the information is disclosed anonymously        but with accuracy guaranteed.    -   (19) It can predict, mitigate and, possibly, avoid risk.    -   (20) It is capable of presenting as a dedicated search engine        for Financial Services.    -   (21) It is “friendly” to and compatible with all sectors.    -   (22) It encourages massive market growth of all types of risk        transfer instruments and securities.

The present invention focuses on giving individual financial productcharacteristics a more ordered methodology for valuation analysis. Inloans and lines of credit, insurance and reinsurance, and in relatedderivative products, the system has looked at the creation of basicapproaches to determine valuation and to track the performance on both apast and a going forward basis in the resulting product placements.

The system puts all financial products through a common sieve, through afunnel that measures the attributes that are associated with each datareport and system credit, whereby one can measure the attributes of eachtransaction against the same or similar attributes of othertransactions, then the entire structure and the placement of eachproduct all becomes much more efficient.

An electronic database may display and cross reference all elementsrelevant to product and/or policy issuance, including, withoutlimitation: volumes, by broad product type or sub group, by region, bytime, price, terms, type of counterpart, etc.; operating metrics; audittrails; and, in time, both granular and high level risk performance byinsurance product or insured type analyzed as far down as performance onthe individual policy level offering progressively more “granular”information leading to increasingly refined product views. Over time theemphasis of the analytics may shift from improving operational andvolume performance to focus on strategic benefits, product positioning,transaction patterns, and risk analysis.

The solution of the present invention tracks the composition of theassets or financial instruments and details of transactions as theyoccur. If it was paper we would put paper clips or “post-it” notes onall or certain pages of the documents where critical information is tobe found. Instead, imagine a Transaction Credit system credit was“stuck” onto each electronic file containing the details of atransaction. The Transaction Credit system credit has at least fivevaluable features:

-   -   It provides economic value in that it can be used to offset        future transaction fees, and/or to offset the cost of acquiring        transaction and market data.    -   It provides incentives to conduct repeat business as        participants are more likely to use a credit with real value.        The credits also have terms—the precise definition of which can        be used to induce usage.    -   It is tradeable.    -   It is structured to reduce cost of regulatory compliance.        Financial service regulators would find the concept of the        credits intriguing because reviewing a flow of credits reveals        market sector activity by business volumes, and product demand        on an increasingly granular basis. The database provides insight        into progressively more detailed information that otherwise must        be collected through a much more labor intensive, time consuming        and costly process of on-site examination and review of the        regulated businesses.    -   It is a tightly-focused new tool for public policy, a clearly        non-inflationary economic stimulus, with immediate application.        A Transaction Credit system credit “grafts” to any transaction        platform or technology and immediately targets “search”        functions. It is searchable. A search engine can search credits        in order to determine “best pricing” and/or an appropriate or        preferred match. A search engine can search for attributes or        terms of financial products.

The present invention presents a data processing platform that is trulytransparent, inclusive of all origination, distribution and investmententities. This structure allows for comparative analysis across markets,transaction platforms, and products, in real-time and inclusive ofactual up-to-date investment performance. The full process ofIlluminating financial markets is long overdue. It is necessary tore-build the marketplace from a dependence on opaque 20th centuryartificial structures to a reality-based 21st century system where valuecan be assessed as previously hidden risk descriptions and associatedcash flows are each unlocked.

As discussed, credit markets and financial markets are presently opaque.As a result, one critical issue is risk detection/assessment and, withthis, appropriate financial valuation. Information currently lags, orcan be hoarded, preventing valuation on the most granular per financialcontract/asset basis. This is one form of informational asymmetry and,as a consequence, there is financial illiquidity in the marketplace.

To address this, the transparency-inducing system disclosed hereininfuses markets with risk-illuminating information that facilitatesmarket function, liquidity, risk tracking and the performance andsanctity of a contract. This can occur with near-real-time updates of abroad range of risk-containing contractual elements, inclusive of thosethat detail operating conversion/pull-throughs at specific points in theorigination or intermediation process. This provides a comprehensive andencompassing (of all market participants and engines) solution to thecurrent financial crisis.

It is appreciated that flat, Gaussian mathematics-based analytics ofrisk data can be inherently flawed. Risk actually occurs elliptically,with an associated need to capture, display and analyze informationaccording to its precise incidence and updated Bayesian experience(along with qualitative elements, such as the intensity of data)throughout the full life cycle of all perils. As a result, it isnecessary to create an effective risk-differentiating “ticker tape” onall contracts and any derivatives products that will include real timetracking.

This system disclosed herein is designed to encompass any portion of, orthe full spectrum of, a contract's lifecycle. For example, from loanorigination, and the first inquiry by a consumer or credit seeker, tothe final maturity, or end disposition. The information that describesthe origination of a loan and all related risk and valuation data may beentered into the system and becomes transparent and trackable. Thesedefining risk parameters of each loan can be provided or displayedanonymously, in real-time or near real-time. Such information may alsoalways be accessible to all market participants, including regulators,rating agencies, investors and market makers.

The risk data provided to the system can be accessed to take as macro ormicro a view of overall market or product-specific ortransaction-specific information or risk-element-specific data as theuser desires. A lender's underwriting standards describe the risk thathe is willing to take, and which can be shifted to others downstream.The loan documents further specify the obligations of each counter-partyto the financial contract. This data will always be accessible no matterwhat happens to the loan—even if it gets sliced and diced intoderivative products that use only a portion of the original loaninstrument.

As the loan ages, its performance is tracked and its risk updated. Theperformance (in terms of actual cash flows) and other related risk datais stored in the database. Each descriptive element and any status orprice changes may be embedded and stored in a “Transaction Credit,”although not limited thereto. The Transaction Credit, in turn, hasdirect financial benefit to the participant. Thus, all marketparticipants have the optional ability to “trade” transparency inexchange for lower costs. A Transaction Credit is a unique, anonymousidentifier that can be applied to reduce the cost of futuretransactions, or of strategically important market information.

The Transaction Credit also serves as a tracking device. Transactioncredits continuously add information and value, even as the loan ages,enhancing liquidity and powering business volumes. This unique toolprovides incentive for participation and tracking risk characteristicsof each instrument.

A reporting mechanism acts as a “living contract” that updates historyalong with data capture of all risk elements from first inquiry to finalcontract disposition. The data capture and risk analytics may focus onnear real-time comparative conversion/pull-through metrics at eachprocess point in the origination and intermediation of all contracts andany of their aggregations.

The “living contract” combines and resolves all ontology and taxonomyissues that can result in regulatory, accounting, jurisprudential orregulatory arbitrage, with specific and cross-reference views onoperating metrics, risk-defining contractual elements, informationalupdates (at least coincident with each intermediation), per-contractcash flow performance reviews as they occur, and the diversification ofcredit risks with those risks (such as natural catastrophic disaster)that do not positively correlate to credit—plus an ability to minediffering risk databases of all non-correlating risks.

This information may be presented in a manner that facilitatesrisk-specific and risk-differentiated cash, futures, options andassociated indices, as well as the coincident arbitrage between thesemarkets. At each point along the way: Data is collected, linked andtracked; Data is viewed in real time; Transaction Credits may beearned—reducing costs.

All of the above may utilize: time-stamping, unique encoded (per risk)identifiers, both veracity gradings by some acceptable scale andsourcing of judgment statements (by counterparts, processors,outsourcers, investment banks, etc.), as well as real-time percontract/asset valuations of comparable risks—to create an online tickertape, supported by the “living contract.”

Some risks which may be disclosed in this process include, but are notlimited to: Asset valuation, Bankruptcy, Credit, Currency, Changes insentiment, Counterparty, Country, Definitions (Absence ofstandardization), Diversification of risk, Economic (Inflation,recession and interest rates—yield curve), Environmental, Liquidity,Litigation, Market crashes, Moral Hazard, Performance/Operating risk,Spread, Terrorism/war, Transaction, Transfer, Transparency (i.e. Priceand term discovery), Volatility, Volumes (i.e. price discontinuity bytransaction amount or “size”), underwriting standards, and Terms andconditions.

As a loan is held in an investment pool, the details of the individualloans and pricing characteristics must be fully and accurately known anddescribed. Today, this information is difficult, if not impossible toobtain. But in the system disclosed herein, any loan within theportfolio can be made fully transparent down to the key data riskelements. The precise original underwriting standard can be accessed andcompared against other risks. And those data points can be used tocreate new informational or investment products. Wherever it goes, nomatter how many times it is repackaged and resold, the data associatedwith that loan remains in the data processing system, fully transparentfor all market participants.

Participants can view in the system the data of the specific loan,lending activity in the retail market, and transactional activity in thesecondary market and all related risks. Participants can compareperformance of the loan, and of all related products based off of it.Thus, regulators can detect disturbing market trends as they emerge.This may empower regulators to oversee transparent markets without theneed for regulation.

Over time, a rich repository of market data is formed. The display ofdata in real time creates a “ticker tape” on the markets for loans andlines of credit, which has never existed before. This enables pricediscovery and the tracking and establishment of asset values. Itprovides a methodology of ascribing reliable asset values and creditratings to securitized and structured products. This in turn createsmore efficient markets by exposing differences in market pricing, whichboth provides arbitrage opportunities, but at the same time limitsexcessive arbitrage, and spreads through competition, leading to morerobust financial markets.

Timely access to loan data, compared across transaction platforms, canbe used to identify particular bellwether events such as systemic risksand concentrated counterparty risks, shifts in borrowing activity, loanrepayments, refinancing activity, or resale of derivative risks and muchmore. Participants can track and model these data points to assess theactual performance and risk profile of assets.

The system facilitates identification of impending toxic trends,excessive inventory by loan type and other warning signs, thereby“connecting the dots” to form a comprehensive view of systemic risk.With this information in hand, the owner, investor, evaluator orregulator can take the appropriate steps to manage the risk.

The only way to grow such a complex marketplace is to enhance theproduct creation process and to assure that the risks are bothappropriately measured and “costed” to the intended investment result.In this way, it is possible for the product origination process and theanticipated financial performance of each contract to secure themarketplace.

A frank and transparent identification and grading of all contractualand associated risks in product creation enables growth of the financialmarkets—massively. Once that identification and grading (i.e.,standardization) is complete, we can price the risks openly, out of amore complete understanding of the likely incidence of each definedperil. The full disclosure across a product's life cycle, induced byincentives that reduce costs or increase market advantage, provides thefinancial system with a stronger foundation.

The ability to view risk data electronically in near or real-time fromboth macro and micro views is particularly useful when it is necessaryto value complex, rarely traded and unique aggregations of contracts,such as those that commonly occur in both the property-casualty sectorsof insurance and the structured finance sector of capital markets. Theability to review, compare and contrast macro-to-micro views ofrisk-disclosing, value-impacting information such as that disclosedherein has not heretofore been captured or displayed across the fulllife cycle of each financial contract or aggregation in near- orreal-time.

It facilitates the entry/exit of new products and creates new forms ofcurrency. Further, it restores confidence in a level playing field infinancial services, demonstrably lowers costs for all participants,measures and compares risks and values electronically.

Referring now to FIG. 3, shown is a schematic block diagram depictingone embodiment of the system according to the present teachings. Thesystem may comprise numerous pieces of software executing on computerreadable media that interact with a database 200 to store, retrieve, andmanipulate data for users 216, 218, 220 through a network 214. In oneembodiment, although not limited thereto, the network 214 may be theInternet and the system may comprise a general user interface whichallows users to access the system through a website. In this way, userscan have real-time access to market data anytime and from anywhere.

The system may comprise the following pieces of software executing oncomputer readable media, although not limited thereto: instrumentcreating software 202 for creating financial instrument data records andstoring them in the database; risk creating software 204 for creatingrisk data records and storing them in the database; risk associationsoftware 206 for associating risk data records with financial instrumentdata records; risk updating software 208 for updating risk data records(e.g, risk value, etc.); financial instrument evaluation software 210for evaluating the value of a financial instrument based at least inpart on any associated risks; reporting software 212 for reporting datarelated to financial instrument data records and/or risk data records;and trading software 213 for trading financial instruments.

It is to be appreciated that the risk creating software 204 may createrisk data records, store them in the database, and associate them withfinancial instrument records without the need for risk associatingsoftware 206, although not limited thereto. In addition, while riskupdating software 208 may be used to update risk associated with afinancial instrument, it may be preferable to create new risk datarecords, thereby keeping a record of the change in risk (and risk value)over the life of a financial instrument.

Following is one exemplary embodiment of a financial instrument datarecord schema, although not limited thereto:

Transparency Instrument Title Type Market Owner Index Value ($) VA-90991Mortgage Primary John 78% $400,000 residential Smith TV-887 Line ofPrimary Cathy 98%  $45,000 credit home Newman equity TX-0001 LifePrimary Sarah 45% $600,000 insurance insurance Velo

Each financial instrument data record may have associated with it anumber of risk data records. The quantity and quality of the associatedrisks may be used to calculate a transparency index of a financialinstrument, although not limited thereto. For example, a particular typeof instrument may have a set of standard risks, the disclosure of whichyields a certain level of transparency. Following is one exemplaryembodiment of a risk data record schema, although not limited thereto:

Financial Current Risk Disclosing Instrument Date Type Value PartyVA-90991 Mar. 7, 2010 Loan to .8 AMM, Inc. value VA-90991 Mar. 7, 2010Appraisal $500,000 AMM, Inc. TX-0001 Jan. 1, 2007 Age 23 Acme InsuranceTV-887 Feb. 12, 2009 Credit 680 AAA rating Credit TV-887 Feb. 12, 2009Comparable .5 transaction rating VA-90991 Nov. 19, 2009 Portfolio .8 ABCdiversification Mortgage of owner VA-90991 Nov. 19, 2009 Environmental.9 ABC catastrophe Mortgage risk rating TX-0001 Jul. 22, 2008 Market 1Acme economic Insurance indicatorsUsing disclosed risk information such as this, it is possible tocalculate a monetary value of each particular risk and, consequently, afinancial instrument having multiple associated risks.

For example, and without limitation, a mortgage company who issues a$400,000 mortgage on a $500,000 house (e.g., loan to value 80%) maycalculate that the monetary value of that particular risk as $100,000.However, if a subsequent appraisal values the house above $500,000, orif the particular geographic region where the house is located sees anincrease in property values, the value of the financial instrument mayincrease since the overall liability is lowered. It is to be appreciatedthat the embodiments presented herein are exemplary and not limiting.The system of the present teachings may calculate a monetary value onany number of different types of risks, both credit and otherwise, inorder to provide an open and accessible system of risk disclosure andevaluation of financial instruments.

One objective of the system according to the present teachings is toprovide the ability to capture and value non-credit risks. For example,whether a mortgaged house in a flood zone, the diversification of anissuing bank, etc., all affect the value of financial instruments andtheir tracking and valuation provides incredible value to users of thesystem.

The creator of a financial instrument not only discloses all of therisks that may be used to value the instrument, but those risks can beupdated as necessary by creating new associated risk data records. Riskdata records may have a date/time stamp in order to determine whetherthey are current and the change in risk can be tracked during the lifeof a financial instrument. The associated risk data records allow areal-time or near-real-time calculation of a financial instrument'svalue by users of the system.

The reporting software 212 may be able to report on any attributes ofrisk data records and/or financial instrument data records, although notlimited thereto, from the broadest view to the most granular. Forexample, in one embodiment it is possible to report on a financialinstrument and then see each associated risk. In another, it may bepreferable to report on all “loan to value” type risks to see how muchrisk is in the marketplace should there be a downturn in real estatevalues. Similarly, it may be preferable to report on all financialinstruments in a particular portfolio, owned by a particular entity, orall “mortgage” type instruments, although not limited thereto. It is tobe appreciated that any number of different reporting options arepossible with the present teachings and it is not limited to theseparticular embodiments.

Referring now to FIG. 4, shown is a schematic block diagram depictingone embodiment of data association according to the present teachings.As shown, each financial instrument 300, 302, 304 can be associated withone or more risks 310, 312, 314, 316. As an example, a lender may createa mortgage loan financial instrument 300. When doing so, the lender mayprovide information on the risks 310, 312 associated with that loan(e.g., underwriting standards, loan-to-value, appraisal value,borrower's payment history, title search, etc.). It is appreciated thatany financial instrument may be used with the system disclosed hereinand any number of different types of risks may be used to evaluate aninstrument, and the current teachings are not limited the particularembodiments provided.

Using the system's reporting mechanism it is possible to detect trends.In one example, although not limited thereto, it may be helpful toascertain all loan to values for mortgages issued by a certain bank to acertain zip code. If all loan to values are over a certain percentage,say the average for the industry in that zip code, this may indicatefraudulent activity by the bank in order to issue mortgages. Thereporting mechanism of the system can report risk and financialinstrument information across a variety of different attributesincluding, although not limited thereto, entity, market, segment,geographic location, risk type, financial instrument type, etc. Inanother example, this reporting mechanism allows a regulator to identityall risks a certain entity possesses, such as an issuing bank, in orderto calculate that bank's overall liability, although not limitedthereto.

The disclosure of risks 310, 312 permits real-time valuation of the loanby instrument evaluation software 210 (shown in FIG. 3), even thoughrisks (e.g., risk values, etc.) may change during the life of theinstrument. This also provides the ability to compare similarinstruments. A proper valuation of a financial instrument can bedetermined at any given time, which may be accessible by all othermarket participants, leveling the playing field and increasing theliquidity of the market. Algorithms may be employed to determine valuebased upon the relative weight and/or calculated risk value of any risk,although not limited thereto. One embodiment of the relative weights ofrisk is presented in the table below, although the present teachings arenot limited to this particular embodiment:

Risk Calculated Risk Value Relative Weight Risk₁ $25,000 .2 Risk₂$15,000 1 Risk₃ $30,000 .8

During the life of the instrument, the risks associated with theinstrument may change, such as loan terms and other factors. Risks canbe updated by risk updating software 208 (shown in FIG. 3) or by addingnew risk data records. Financial instruments may be repackaged, resoldand sliced and diced in any number of different ways, which may occur onsecondary markets. When this happens, only a portion of the originalrisk may travel with the new instrument. However, because risks aredisclosed in the system, they can travel, or track, any instrument thatincorporates those risks. As an example, shown in FIG. 4 a newinstrument 302 may incorporate further risk(s) 314 to the risks 310, 312associated with instrument 300.

Reporting software 212 (shown in FIG. 3) may permit users to access thewealth of market data in the system and report on instruments, risks, orany attributes associated thereto. This may be useful for regulators,for example, who may watch certain types of risks, industries, markets,sectors, portfolios, instruments, or any other piece or pieces ofgranular information to determine overall market changes. Instrumentscan be classified by type, geographic region, currency, originator, orany number of different attributes. Similarly, risks can be classifiedby type, time, related field, or any number of different types. Thisway, system users can access the wealth of information by any number ofdifferent attributes. This enables the identification of trends. Moneycan also be tracked using the system, which provides a solution tonational security concerns regarding the flow of illicit funds.

In exchange for providing information on the risks 310, 312, 314, 316associated with financial instruments 300, 302, 204, transaction credits320, 322, 324, 326 may be earned. These credits may have value in and ofthemselves, for example, as payment for accessing reporting mechanismsin the system. In this way, a user can not only be compensated bydisclosing all of the risks involved in a financial instrument, butthose risks can be tracked in all subsequent instruments and the earnedcredits can be used or traded. This enhances liquidity since risks aredisclosed and the veracity of any disclosure can be tracked back to thedisclosing party. Credits may be tied to each risk, instrument anddisclosing party, although not limited thereto.

Referring now to FIG. 5, shown is a flowchart depicting one embodimentof the method according to the present teachings. The following stepsmay be performed, although not limited thereto: create instrument(s)400; create risk(s) 402; associate risk(s) with instrument(s) 404;update risks 406; and evaluate the value of the instrument 408, whichmay be done based on the disclosed risk(s). The steps may be repeated asnecessary and in combination to create additional instruments, forexample, where instruments are repackaged in secondary markets. Thesystem may acts as a “clearing house” for settling transactions withcomparable risks between users of the system. This way, financialinstruments can be easily sold, repackaged and sold again, all whilereal-time value and associated risks are disclosed. The method may alsoinclude reporting data contained in the system to users (shown in FIG.3).

While the present teachings have been described above in terms ofspecific embodiments, it is to be understood that they are not limitedto these disclosed embodiments. Many modifications and other embodimentswill come to mind to those skilled in the art to which this pertains,and which are intended to be and are covered by both this disclosure andthe appended claims. It is intended that the scope of the presentteachings should be determined by proper interpretation and constructionof the appended claims and their legal equivalents, as understood bythose of skill in the art relying upon the disclosure in thisspecification and the attached drawings.

What is claimed is:
 1. An exchange system for trading financialproducts, comprising: a data processing system having at least oneprogram executing computer, at least one data storage device, and atleast one output device; at least one database provided in said at leastone data storage device; financial product data record creating softwareexecuting on said at least one program executing computer for creating afinancial product data record for a financial product and storing it inthe at least one database; financial product risk data softwareexecuting on said at least one program executing computer for creating aplurality of risk data records, storing the risk data records in thedatabase, and associating them with the financial product data record;evaluation software executing on said at least one program executingcomputer for: determining a current monetary value of the financialproduct based at least in part on a monetary value of the risk datarecords, the determining including converting the value of each of therisk data records to a monetary value; and calculating a transparencyindex of the financial instrument, the transparency index based at leastin part on the quality and quantity of the risk data records, whereinthe transparency index represents a measure of confidence in the currentmonetary value; trading software executing on said at least one programexecuting computer for trading the financial product among users of thesystem using the current monetary value and the transparency index. 2.The system of claim 1 wherein the financial product data recordscreating software creates financial product data records for one or moreof: loans; lines of credit; insurance; reinsurance; equities; derivativefinancial products; swaps of financial products; and pooled financialproducts.
 3. The system of claim 1 wherein the financial product datarecords creating software creates financial product data records forsubsequent or derivative products.
 4. The system of claim 1 wherein thefinancial product risk data software creates risk data records forunderwriting standards, financial terms, transaction platforminformation, exchange information, originator information, borrowerinformation, appraised value, loan to value, comparable transactioninformation, diversification, economic indicators, environmental issues,liquidity, litigation, global conflicts, or market volatility.
 5. Thesystem of claim 1 wherein risk is updated by creating one or more riskdata records with updated risk data that is used in the evaluation ofany associated financial product.
 6. The system of claim 1, furthercomprising computer programs executing on said data processing systemfor calculating a price to a data requester for receiving data from saidsystem wherein said price is calculated based on the data processingsystem participant providing one or more financial product data recordsor risk data records.
 7. The system of claim 1 wherein the financialproduct data record identifies the financial product by serial number.8. The system of claim 1 wherein the transparency index is representedas a percentage.